A new home downsize incentive could reduce your age pension

A NEW incentive to tempt senior Australians to downsize their home could cost them their entire age pension. The dressed-up superannuation tax break, promoted by the Federal Government as helping housing affordability, risks leaving many retirees worse off financially and will mostly benefit wealthy people.

From July this year, people aged over 65 can pump up to $300,000 of the proceeds of selling their home into super without affecting other super contribution limits. However, the proceeds get counted in their pension assets test — while the family home is exempt — and could dramatically reduce their pension.

Single Pensioner Example

For example, a single pensioner homeowner currently receives the full $906.70 a fortnight if their assets are below $253,750. Assets above that reduce pension payments until it is cancelled when assets reach $552,000.

Financial strategist Theo Marinis said the super downsizing rules were “like a lot of changes they make — they sound good in principle but when you look at the devil in the detail in practice, it’s not as good”.

“Quite often they’re foolish changes, and this is one. It’s like everything they’ve done in the last 10 years — half-cocked,” he said.

80% retirees receive part or full pension

Australian Bureau of Statistics data shows almost 80 percent of retirees receive a full or part age pension. National Seniors chief advocate Ian Henschke said pensioners looking to downsize should seek professional advice or at least speak with a Centrelink Financial Information Service officer.
He said the changes would mostly benefit those with enough wealth to make them ineligible for a pension.

“A full pensioner or part pensioner, depending on their Super-tax break could cost retirees circumstance, could have their age pension reduced or cut completely.”

National Seniors is calling for up to $250,000 of downsizing proceeds to be exempt from Centrelink means testing.

Others have made similar calls, but seniors group COTA Australia’s chief executive officer, Ian Yates, said this could distort the market. He said the downsizing rules would “add another option” for retirees. “It’s going to suit some people but will be irrelevant to other people’s decisions, and
some people will downsize anyway,” he said.

Planning for Prosperity senior adviser Bob Budreika said transaction costs such as stamp duties and real estate agent fees could often make switching homes not worth the money or effort. “And I don’t know anyone moving home who says ‘I can’t believe it — all the furniture fits perfectly’,” he said.

Read the original article by Anthony Keane

The Labor Government recently announced the details of their federal budget that will come into effect should they be re-elected.  While we encourage you to have a look at the whole summary, we thought it would be worthwhile to highlight a couple of the changes to superannuation and how they may affect you, particularly if you are a farmer or small business owner.

Increase of the concessional contribution caps for certain members

The concessional contribution cap has been proposed to be raised from $25,000 to $35,000 for people over 60 from 1 July 2013 and people over 50 from 1 July 2014.

This is a welcomed change, particularly for baby boomer farmers that have the ability to make large deductible contributions into their super each year.

For everyone else, the concessional cap remains at $25,000 although it is expected to increase over time through indexation.

The Coalition has indicated support for this measure which means there is the possibility it could be legislated before the election.

Changes to the tax exemption for earnings on superannuation assets supporting income streams

Currently, all earnings (such as dividends, interest and capital gains) on assets supporting income streams (such as superannuation pensions) are tax-free.

This is in contrast to earnings in the accumulation phase of superannuation which are taxed at 15 per cent.

The Government proposes from 1 July 2014, earnings on assets supporting income streams will be tax-free up to $100,000 per year. Earnings above $100,000 per year will be taxed at a rate of 15 per cent.

Earnings will include interest, dividend and rental income but special rules will apply to capital gains depending on when the asset was acquired.  Special arrangements will apply for capital gains on assets purchased before 1 July 2014.

How could this affect me?

For the majority of people who are receiving a pension from their super, this change won’t affect them year to year, as the earnings within the fund need to exceed $100,000.  However, those who have lumpy assets in their super, such as property or farm land need to be aware that this could trigger capital gains tax upon the sale of the asset.  We are still waiting for the Government to clarify many of the details of this change.

This should not necessarily be a cause for panic as superannuation is still the most tax effective environment to hold an investment.  There is no substitute for quality advice in this area

Daniel Budreika
Planning for Prosperity

242 Glen Osmond Road, Fullarton SA 5063
Phone: (08) 8333 0790 | Fax: (08) 7200 2647

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