Question 1: I have an investment property (acquired 1995) in my own name and a principal place of residence in joint names. Am I interpreting superannuation downsizing contributions correctly, in assuming that the investment property sale funds can be used as a downsizing contribution and as such, not be liable for CGT? If so, on subsequent sale of jointly owned PPR, my wife can make the downsizing contribution. Thanks Craig. Allan
If you are a member of a couple then each member can contribute up to $300,000 each, so long as the combined super contribution does not exceed the sale price. This is still allowed even if the property was held in one name only.
One anomaly of the rules is there’s no requirement for you to actually ‘downsize’ into a smaller home to be eligible for this contribution.
But other rules do apply.
Firstly, you must be aged 65 or older. The government plans to lower the age threshold to 60, but it has yet to legislate this change.
You must have also owned the home for at least 10 years, and you can only make a downsizer contribution in relation to one home.
Another requirement, pertinent to your situation, is that the home must qualify as a ‘main residence’, either fully or partly.
To qualify for a full or partial Capital Gains Tax (CGT) main residence exemption, the property must have a dwelling on it, and you must have lived in it for all or part of its ownership period.
A vacant block of land or an investment property that you have never lived in does not qualify.
You may be getting confused with the qualifying conditions to use the downsizer rules, and the CGT tax that is actually payable.
There is no reduction in CGT by using the downsizer rules. The reference to CGT is only to determine whether you are eligible to make a downsizer contribution to super over the sale of a particular property.
As an example, if you had a property with a house on it for 15 years, and for at least part of that 15 years you lived in it as your main residence, then you may qualify to make a downsizer contribution because it would have been partially exempt from CGT. However, CGT may still apply for the period you used it as a rental property.
You should seek personal advice in relation to your individual circumstances and eligibility.
Question 2: If I make catch-up concessional contributions in the 2021-2022 financial year from the 2018-2019 financial year, in which year will that be applied, 2021-2022 or 2018-2019?
‘Catch up concessional contributions’ are when you exceed your regular annual superannuation concessional cap, which is currently $27,500 per year (as of 2021-22), and utilise unused concessional contributions from previous years.
Concessional contributions to superannuation include:
- Your employer SG contributions
- Salary sacrifice contributions
- Personal contributions for which you claim a tax deduction.
Unused ‘catch up’ contributions started accruing from the 2018-19 financial year. And they can accrue for up to five years.
The oldest available unused cap amounts are used first. Therefore, unused cap amounts from 2018-19 would be applied to increase your cap first, before unused cap amounts from 2019-20 and so on.
As an example, if you had $3000 of unused concessional contributions from 2018-19 and $5000 from each of the 2019-20 and 2020-21 financial years, and if you then wanted to use catch-up contributions of $10,000, the following would apply:
- $3000 would be taken from 2018-19 first
- $5000 would be taken from 2019-20 next
- $2000 would be taken from 2020-21, and the remaining $3000 would be carried forward and could be used in a future year.
A couple of important conditions should be kept in mind, though.
Firstly, to be eligible for catch-up contributions, your total superannuation balance across all your super funds must be less than $500,000 on the previous June 30.
Secondly, you do not need to notify anyone when deciding to use catch-up contributions.
If you exceed your annual concessional cap and have a total super balance below $500,000, then this is automatically applied by the ATO.
Therefore, before you decide to go over your annual cap, I strongly suggest you check if you are eligible to use catch-up concessional contributions, and if you are, double check how much you have accrued.
This information can be found on your MyGov login, or you can ask the ATO to provide details on your situation.
Finally, from a tax perspective, you can only claim a tax deduction for the year in which the contribution is made.
From the previous example, if you were eligible to claim a tax deduction, or if you were salary sacrificing the additional $10,000, this amount would be deducted from your current (2021-22) taxable income.
Craig Sankey is a licensed financial adviser and head of Technical Services & Advice Enablement at Industry Fund Services
Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.
Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives.
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