Super Reforms and the Effect on Older Property Investors

Super Reforms and the Effect on Older Property Investors

Read time: 3 minutes, 38 seconds.

As soon as you start working for a company in your youth, a percentage of your salary is deducted and paid by your employer towards your super. It’s your investment toward a comfortable retirement. 

Factors including the total amount in your super fund and your age can affect how you contribute. While all super funds have contribution caps, your contribution can either be concessional or non-concessional.

Concessional contributions are contributions taken from your salary or wage before tax. Once it lands in your super it is taxed at a 15% rate. For non-concessional contributions, the taxing is done before it gets to your super. In this case, your wage or salary is first taxed and then the contribution is deposited in your super. For both types of contributions, though, you will still attract a tax if you go above your contribution cap.

So what does the new super reform look like?

 

The Major Changes to Super

  • The increased contribution caps

If you have ever wanted to increase the amount you contribute to your super, it would interest you to know that the caps have increased. As of July 1, 2021, there will be a higher contribution cap. The transfer balance cap will move to $1.7 million from $1.6 million.

  • Increasing the First Home Super Saver Scheme 

The First Home Super Saver Scheme (FHSSS) is currently at $30,000 for both concessional and non-concessional contributions. This number should jump by $20,000 to $50,000. 

  • Downsizer contributions

The age eligibility for downsizer contributions is another element expected to change. Currently, the age eligibility is 65 years old and should drop to 60 years old.

  • The Superannuation Guarantee Threshold

The current Superannuation Guarantee threshold of $450 per month will be removed.

  • The Work Test

If you are aged between 67 and 74, no work test will be required for your voluntary super contributions. This remains true whether you make or receive non-concessional contributions to your super. However, the work test is required in the case of a personal deductible contribution.

  • Additional Funding

There will be an increase in the funding for your super and APRA. This funding will come from increased taxes on financial institutions.

What can older investors expect?

Let’s say you want to downsize your house. So you are selling your primary home. You can now contribute as much as $300,000 to your super completely tax-free!

If you have a partner, the same goes for them. Up to $300,000 can be added to your super tax-free which is calculated per individual. So your wife, husband, or partner also has the same opportunity. With that in mind, as a couple, you can add up to $600,000 to your super without attracting any tax. Plus, there is no pressure to buy another house.

Sure, your downsizer contribution still falls under the non-concessional category. The reform now creates a distinction. The previous super reform implemented a super limit of $1.6 million. Meaning that if your super is worth at least $1.6 million, making a non-concessional contribution would not be an option for you. With the new changes to the reform, this restriction does not apply to any downsizer contribution you make. 

Furthermore, the annual cap of $25,000 for concessional and $100,000 for non-concessional contributions will not apply to your downsizer contribution.

tHINGS TO CONSIDER

While there are benefits to the changes to the super fund, there are also elements to consider if you want to make a downsizer contribution. 

The contribution must come from selling a property that you have owned for at least ten years. While it does not have to be the last place you lived in, the property must have been your primary home at some point in your life. Or it could have been your spouse’s home at one point or another. It’s important to note, though, that this does not include any variation of mobile homes.

To reap the benefits, you must make your contribution within 90 days of selling the property. You must also complete the downsizer contribution form. Bear in mind that you will be deemed ineligible if you have already made a downsizer contribution to your super.

If you are an older property investor, aged 60 years and up, this is a chance for you to boost your retirement fund.

If you need further clarification, please reach out to MLS Finance.

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📩 Email: enquiries@mlsfinance.com.au

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