Where is your wealth tied up?

Is all your wealth tied up in your family home leading up to retirement?

As unusual as this question seems, it’s not uncommon to sit with clients who would answer “yes”, and they’re usually from one of four specific groups…

• Baby Boomers i.e. generations who haven’t benefited from a lifetime of superannuation guarantee contributions
• Self-employed
• Home-duties
• Divorcees

During the last Federal Budget, the Treasurer floated the idea of allowing specific benefits to those who sold the family home in the lead up to retirement, thereby freeing up some of their wealth. The benefit could afford them a potential $300,000 boost to their superannuation balance – over and above the existing non-concessional contributions limits.

In December 2017, Mr Morrison came good on his word and specific legislation known as the Downsizer Superannuation Contribution legislation was passed. At a time when we already had too much jargon in our industry, we welcomed a new acronym and financial and taxation strategy to deploy – the DSC.

So am I eligible for this benefit?

Eligibility for making a DSC is not affected by a person’s total superannuation balance or whether they are working. It will come into play on 1 July 2018 and will be governed only by the following seven conditions:

1. They must be 65 or older at the time the contribution is made
2. The contribution must be in respect of the proceeds of the sale of a qualifying dwelling in Australia
3. A 10-year ownership condition must be met
4. Any gain or loss on the disposal of the dwelling must have qualified (or would have qualified) for the main residence CGT exemption in whole or part
5. The contribution must be made within 90 days of the disposal of the dwelling, or such longer time as the commissioner allows
6. The person must choose to treat the contribution as a downsizer contribution, and notify their superannuation provider, in the approved form, of this choice at the time the contribution is made
7. The person cannot have had DSCs in relation to an earlier disposal of a main residence

For a property to be classed as a qualified dwelling in Australia, it must have been a fixed structure. Proceeds from the sale of houseboats, caravans, and other forms of mobile homes, even if they were a main residence, do not qualify for a DSC.

The 10-year ownership is quite broad, for example:

• One member of a couple may only be on the title when it was sold
• A property is used for both business and principle place of residence
• Less than 10 year ownership as a result of having had a former family home compulsorily acquired
• A person will be eligible to make a DSC in the following circumstances:
• If the property was owned by one member of a couple for at least 10 years, it does not matter how long a couple were married
• If the spouse who owned the property for longer than 10 years dies, the surviving spouse is eligible to make a DSC, even if they were married for less than 10 years

If you are considering downsizing your family home as part of your retirement strategy, we encourage you to contact our office on 1300 726 082, make an appointment and discuss your personal circumstances with one of our financial advisers.

Legislation is often complex to navigate and if interpreted incorrectly, or if the process is not completed in its entirety, you may end up worse off – something we can help you avoid.