Sorting out your finances
22 Jul 2019
In the latest in our series about the important issue of downsizing, we look at getting your finances in order for the move.
If one of the reasons you’re downsizing is to top up your superannuation, the government has made it a whole lot easier.
Since July 1, 2018 Australians aged 65 or older have been able to deposit up to $300,000 of the proceeds from selling the family home into superannuation. For a couple who are both eligible to transfer sale proceeds, the maximum total contribution is $600,000. The home must have been your principal residence for at least 10 years.
However, unlike other super contributions, there are no requirements such as complying with the work test or not exceeding the $1.6 million individual total balance cap.
While the new rules offer a tax-effective way to invest any additional funds from downsizing, it may have implications for those on an age pension.
The surplus funds from downsizing will still come under the age pension assets test and the money invested in super does not receive favourable age pension income test treatment.
If you sell your home, the proceeds are exempt for up to 12 months, as long as you’re planning to use the money to buy another home. The sale proceeds still fall under the income test for the age pension.
Super balances and age pension implications aren’t the only financial knock-on effects of a decision to downsize.
Any major change in your financial affairs should trigger a review of your estate planning, including your will, to ensure it reflects your new circumstances.
It can also be a good time to ensure you tick other boxes that will make it easier to manage your financial affairs as you age, such as putting an enduring power of attorney (EPA) in place.
According to Townsends Business & Corporate Lawyers, an EPA is a document where someone, known as the principal, appoints an individual or individuals to act for them in relation to financial affairs, property matters, and in some states, lifestyle matters such as medical treatment or where the principal lives and how they should be cared for.
This may be used when the principal no longer has the mental capacity to make their own decisions.
In some states, the lifestyle matters, such as medical treatment, fall under another document known as an Advance Care Directive. This will cover your wishes or values should a situation arise where health practitioners need your consent before providing medical treatment if you don’t have the decision-making capacity needed because of illness or an injury.
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