Superannuation wealthy can still use downsizing contributions
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Superannuation wealthy can still use downsizing contributions

I have super of $960,000. My wife aged 65 draws an income from her super that is worth $1.52 million. We are eligible for the downsizer contribution. Can we both make a $300,000 contribution even though my wife will then be above the $1.6 million limit? My $300,000 contribution won’t take me over the limit. Would her contribution have to stay in contribution phase?

The downsizing provisions mean you can tip $300,000 into super from the proceeds of selling your home. Illustration: Simon Letch

The downsizing provisions mean you can tip $300,000 into super from the proceeds of selling your home. Illustration: Simon LetchCredit:

Anybody who is eligible to make a contribution under the downsizing rules can do so, irrespective of their existing balance. However, if the balance in the fund is in excess of $1.6 million for the member, the entire downsizing contribution will be held in accumulation mode where a tax of 15 per cent a year will be levied on earnings. This is why it is important to have your adviser or accountant do a cost-benefit analysis to see if you are better off to hold the money in superannuation with a flat tax of 15 per cent on earnings, or hold it outside the superannuation system where a couple who are eligible for the Senior Australia Pensioner Tax Offset can earn $29,609 a year each in their own name tax-free.

I am 33, earn $220,000 a year, have a house worth $600,000 that is almost paid off as the money in the offset account is almost equal to the debt.

I also have $75,000 in a savings account. My current investment strategy is to continue to grow the savings account. My partner is in a fairly similar position to me though lower income and her house is not yet fully offset so no "excess" savings there. We haven't looked at any other investment strategies as we intend to backpack around the world for 18 months or so while we live off rental income and savings.

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Once we return, we hope to settle down and have children. Is this a good idea or do you think it is a wasted opportunity?

I think you’re doing very well for someone aged 33. The fact you own a debt-free house is a great start. I think it’s great you’ve put yourself in your present position and I totally endorse your strategy about travelling around the world before the babies come.

I have followed your newspaper columns for the past 30 years, have never bought a lottery ticket and only now realise the miracle of compounding returns. I am single.

When I turn 60 in 18 months I would like to retire. I have $1.6 million in super and $400,000 invested outside super in quality managed funds. Those investments were made because I thought the government of the day would make people take super as a pension rather than being able to access lump sums.

I think I will spend about $80,000 a year. Would it be best to use up the managed funds first before moving the super fund from accumulation to pension fund? The main issue I guess is the 4 per cent drawdown.

I suggest you move your super fund to pension mode, where all fund earnings will be tax-free, as will be the pension you draw. I appreciate that you will need to draw $64,000 year but you could lessen the impact of this by delaying the withdrawals until June each year. This will give your fund maximum compounding time. If the money in managed funds is in Australian shares, returns are likely to be about 4 per cent income, and 5 per cent growth. As you should be in a zero-tax bracket when you retire, all income from the managed funds held outside superannuation will be tax-free, and any growth will not be taxed each year because it would be capital gain. You could then structure the withdrawals from the managed funds so that no tax would be payable on realised capital gains as you would still be in the zero tax bracket. This would give you $1.6 million in your tax-free pension fund, and $400,000 in an effective tax-free environment. It doesn’t get much better than that.

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You recently wrote about capital gains on a holiday home and mentioned 20/8/1991.What is the significance of that date? My husband bought a holiday home in January 1990. What expenses can he include in the cost base of this property?

Properties purchased after August 20, 1991, are allowed to reduce their capital gain by outgoings such as rates, land tax, maintenance and insurance if they have not otherwise been claimed as a tax deduction. If you bought before that date you are only allowed to include in the cost base capital expenditure such as improvements, selling and buying costs.

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions.

Noel Whittaker, AM, is the author of Making Money Made Simple and numerous other books on personal finance.

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