The start of a new financial year invariably means changes to the super system. This year, the changes are all positive and will potentially assist people at opposite ends of the age spectrum, as well as those that might be temporarily out of the workforce. Here is the rundown.
1. Downsizers can contribute to super
If you are 65 years or older, you can choose to make a downsizer contribution into your super of up to $300,000 from the proceeds of selling your home. A couple could effectively get up to $600,000 into super.
The main qualification is that your home, which was your primary residence, was owned by you or your spouse 10 years or more prior to the sale. Contracts must have been exchanged on or after 1 July, the home can’t be a caravan, houseboat or other mobile home, and you must make the downsizer contribution within 90 days of settlement. You can’t access the scheme more than once.
Technically speaking, you don’t actually need to buy another home!
It is very unlikely that this scheme will drive the decision to downsize, but if for lifestyle or other reasons you are thinking about downsizing, it could be an added incentive. Super is of course a very tax effective way to invest, with a maximum tax rate of 15% and the magical tax rate of 0% available to retirees who are eligible to access their super through an account based pension.
The main disadvantage is that if you receive a government pension, funds in super will count against the assets test limit. This happens because you sell an asset that is exempt from the assets tests, so it’s not a drawback of the scheme per se but rather a financial disincentive from the act of downsizing.
The downsizer contribution won’t count against your non-concessional contribution cap and can be made even if your total super balance is more than $1.6 million. It will then be included when this is next re-calculated at the end of the financial year.
2. A no-brainer for first home buyers
The First Home Owner Super Saver scheme is up and running and is a “no brainer” for first home owners. It is essentially an accelerated savings scheme where you make additional voluntary contributions into super and take out later for your deposit or down payment on that first home.
In this scheme, you will save about 30% more than if you save by putting the money in a bank account or term deposit. This could be worth up to $6,000.
The only reason a young adult who has never owned a property wouldn’t access it is because if they never end up buying that first home, the funds will be stuck in the super system until age 60.
The scheme is, of course, subject to caps and rules. The main one is that you can only deposit $30,000 in total and a maximum of $15,000 in any one year. While the contribution can be a non-concessional contribution from your own monies, most participants will choose to make a concessional contribution out of pre-tax monies via the salary sacrifice system.
In both cases, the contributions will count against the respective caps.
In terms of eligibility, you can’t access the scheme if you have owned property before. This includes an investment property. A couple could potentially deposit $60,000 and as it is assessed on an individual basis, if one partner has owned property and the other hasn’t, the latter can still deposit up to $30,000. There is no age limit.
When you take the funds out, you must sign a contract to purchase or build a home within twelve months. While the funds can’t be used to purchase vacant land, they can be used to construct a home on vacant land.
3. Catch up concessional contributions
Announced back in the 2017 Federal Budget, the ability to carry forward unused concessional contributions commenced from 1 July. This may suit someone with a low superannuation balance who leaves the workforce for a period of time (such as maternity leave), or who for other reasons is unable to utilise their full concessional cap.
The unused portion of the concessional cap of $25,000 per annum can now be carried forward for up to 5 years. This means that if you didn’t make any concessional contributions for four years, you could potentially make a concessional contribution of up to $125,000 in the fifth year. Or if you made a concessional contribution of $5,000 in the first year, you could make a concessional contribution of $45,000 in the second year.
To be eligible, your total superannuation balance must be under $500,000 as at 30 June of the previous year.
Contributions are measured over a rolling five- year period and unused portions expire if not used. As the scheme only started this year, the first year that you can access it to make a higher concessional contribution is next financial year (2019/2020) and the carry forward will only relate to 2018/19. The following example from the ATO shows how this works.
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