One last chance to top up Super
Individuals aged 65 and over who have owned their principal place of residence for more than 10 years will have an opportunity to make a Non-Concessional Contribution of up to $300,000 from the proceeds of selling their home, should they chose to downsize and relocate.
Individuals who choose to make a Non-Concessional Contribution from the proceeds of selling their home will be exempt from the age test, the work test, and the $1.6 million balance test.
Impact on the Transfer Balance Cap
If an individual has not accessed all of their Transfer Balance Cap (currently $1.6 million) we assume they will be able to immediately commence an income stream (pension) on the Non-Concessional Contribution and:
- The earnings in pension phase will continue to be tax exempt
- The payment will be tax-free in the individual’s personal hands.
However, if an individual has already used 100% of their Transfer Balance Cap, the Non-Concessional Contribution will add to the individual’s accumulation account, and the earnings will be taxed at normal superannuation rates of up to 15%.
While the Budget measure sounds good in theory, each person’s individual circumstances will determine whether making the Non-Concessional Contribution is worthwhile. The Budget measure does nothing to address the growing number of Australians who do not own their own home and generally will have relatively low superannuation savings balances.
BDO doubts that the measure will be enough of an incentive on its own to encourage older Australians to downsize their home and make a Non-Concessional Contribution. State tax reform around transfer duties will be required to make that a reality.