If I’m downsizing my home, how would that affect my super?

My wife and I are over the age limit to make contributions to super. We wish to downsize from our big home to a smaller home but to ensure that we don’t get caught in the middle while we are negotiating, we would prefer to buy a new smaller home, and once that purchase has been completed, sell the family home. Would we still be able to contribute $300,000 each from the proceeds of the existing house if this took place? We will be living in the existing home until it is sold.

The downsizing criteria require that you or your spouse must have held the property at all times for the 10 years leading up to the sale and the contribution must be made within 90 days of settlement of the house.

You do not have to have lived in the home for all the past 10 years, but it must meet the test for a “main residence” exemption under CGT rules. The maximum you can contribute is $300,000 or the sale price of your home, whichever is less.

Credit:Simon Letch

You may each make a downsizer contribution, even if your spouse is not on the title of your home. However, the combined value of your spouse’s contribution and your own cannot exceed your home’s sale price.

Based on what you have told me, I cannot see any reason why you could not qualify.

I have received a $65,000 inheritance. My husband and I are in our late 50s and have an unsubstantial amount in superannuation. Our mortgage is $180,000. What would you suggest is the best way for us to invest this amount?

At your stage in life, the best strategy is probably to pay it straight off the housing loan as long as the interest on that loan is not tax-deductible.

You should then seek financial advice on the possibility of drastically reducing the amount you repay on your mortgage, and substantially increasing the amount you salary sacrifice to super. This should be highly tax-effective as salary sacrificed contributions lose just 15 per cent in contributions tax.

I have heard that a great way to build wealth is to put my super fund into pension mode, and then pay the withdrawals back into the fund. Apparently, this will increase the compounding effect. I am 62, have over $1 million in my fund, own my own home and have $500,000 in savings outside super. I earn about $15,000 a year for part-time work. My wife is in a similar situation. Is this a good strategy?

To access your superannuation between the ages of 60 and 65 you will have to satisfy what is called a condition of release. This involves retiring from a job – it need not be your main job. Provided you have done that you can make tax-free withdrawals as you wish, and you can convert your fund to pension mode. Just bear in mind you cannot make contributions to a pension fund – so the re-contribution you mention will have to be made to a separate accumulation account. This will not affect the overall total balance of your superannuation.

My wife and I are about to move permanently to our country holiday home and make it our principal place of residence. We have owned it for 10 years, during which it has increased in value, and we expect to pay capital gains tax up to this point when we sell sometime in the future. We have been told that for cpital gains tax (CGT) purposes we should obtain a sworn valuation of the property at the time we make this change. Do we need to engage a registered valuer for this or can we use the capital improved value as listed on our recently received council rates notice? I have unsuccessfully tried to find an answer to this on the Australian Taxation Office website.

Julia Hartman, of Bantacs, says that the cost base is only reset to market value if it was your home first and is then used to produce income. In this case, there is no need for a valuation as the CGT calculation will just apportion the capital gain pro rata based on days covered by your main residence exemption and days not.

The upside, if you could call it that, is that if it is still covered by your main residence exemption when you die, your heirs will inherit it at market value at the date of your death. If that happened, there would be no CGT.

  • Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

Noel Whittaker is the author of Retirement Made Simple and numerous other books on personal finance. Email: [email protected]

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