Gareth Daniels is an Authorised Representative, GWM Adviser Services Limited, Australian Financial Services Licensee
It has been said before and it will be said again, “your home is the best investment you will ever make!”
Those of you familiar with our philosophies on wealth creation (being income focussed and the fact that the best investment that you will ever make is in yourself, your career or your business) will know that we do not subscribe to this mantra about the family home.
Recent legislative changes however, have created an opportunity to make the home you have loved, cared for and put money into over the years pay a little something back.
As people settle into their retirement it is common for them to realise that the home they have enjoyed for so many years is in fact now a bit too big, the garden a bit too much work, and the level of maintenance needed is now a bit too daunting. The decision to downsize is therefore made.
Moving to a smaller, more manageable property can result in substantial funds being left over from the transaction as the bigger family home is of a higher value than the new property. So, what to do with those funds?
Super has many rules about the amount of money that can be contributed to it, before tax contributions (concessional contributions) capped at $25,000 pa and after-tax contributions (non-concessional contributions) capped at $100,000 pa or $300,000 under the draw forward rule.
Legislative changes that came into effect on the 1st of July 2018 now mean that when the source of funds are identified as coming from the sale of the primary residence, money can be added to super as an after tax contribution above and beyond the normal annual limits; up to $300,000 per member.
Having additional money inside the superannuation environment as a retiree could provide a significant boost to the provision of passive, tax-free income to support the lifestyle that you want to live.
There are criteria that must be met, a summary of which includes:
* 65 years of age or older when the Downsizer Contribution is made
* You or your spouse has owned the home for 10 years or more
* It is a home in Australia (not a caravan, mobile home or houseboat)
* It is your main residence and so exempt or partially exempt from CGT
* The contribution to super is made within 90 days of receiving the proceeds
* The maximum contribution is $300,000 per person and the contributions must not exceed the total sale proceeds of the house
To determine if the strategy is relevant and beneficial there are some steps to work through:
* If you have determined to move, ensure the house that you are moving to meets your long term needs and that you are not ‘cutting your nose to spite your face’ by purchasing a cheaper place to boost what you can get into super only to find after a few years you are unhappy in that property
* Work with your adviser to determine what is genuinely ‘spare’ as a result of the sale of the family home. Most people incur some lump sum expenses when they move to a new house; new couch, new blinds, changing that ugly carpet in the spare room.
* Once the total available funds are known, again, work with your adviser to ensure that the correct Downsizer Contribution into Super form is completed and submitted with the contribution
* Also work with your adviser to be clear on the how the funds should be allocated within super in regard to your risk tolerance and goals and when to use the super monies to purchase an income stream.
In the truest sense of the word it may be hard to call the family home an investment. Hopefully it has been a space that has created many happy memories over the years; and now with the right implementation of strategy it may prove to be a boost to enjoying the retirement you have dreamed of.