Where do you sit with the government’s ‘incentives’?
In the most recent Federal Budget, Scott Morrison announced a new incentive for retirees, allowing them to downsize to somewhere smaller and significantly boost their super at the same time. Whether it’s one of the best incentives for the elderly to downsize though comes down to personal opinion, as many consider it a strategic way to shuffle the elderly out of their family homes. With this incentive, could it be that addressing the housing supply problem is the primary goal – to make way for the next generation of home owners – rather than improving the lives of older Australians?
The incentive applies to those over 65 who have owned (and lived in) their home for at least 10 years. The upside is that as a couple, if you are downsizing your property, both partners can take advantage of the incentive – meaning a possible $600,000 boost to your superannuation – certainly a boost for those who might have under-planned all those years ago. It also solves the issue to some extent of getting charged a higher personal income tax rate on earnings, if that $600,000 was banked as income.
It will also be exempt from the existing age and work tests and the $1.6 million cap also introduced in this budget. This element of the incentive opens another box of riddles for many though – the multi-layered nature of the exemptions can make things unnecessarily complicated for older Australians who may not even know the difference between these tests and their respective caps. The best approach as always is to go through the opportunity in detail with a trusted financial advisor to determine how valuable this incentive may actually be for your needs.
There are always pros and cons and in this case, one of the greatest cons is that that retirees who aren’t planning on downsizing their property will miss out. If this is you, does this leave a bad taste in your mouth? Move out of your home and we’ll reward you, stay and you get nothing? It may genuinely be beneficial for those empty nesters ready to enter a new phase of their life, but making the decision to downsize can be emotionally challenging. Family members can remain attached to still having access to the family home, despite not living there or having to take care of it, especially where children and grandchildren are concerned.
Selling up and moving on does not come without its challenges either – moving later in life can be very destabilising, not to mention expensive if your family home does not sell for what you consider a decent price. You may then have very little leftover to buy again, even if it is a smaller property and the additional costs such as stamp duty and moving costs may eliminate the advantages of the superannuation incentives. If retirees have a decent superannuation package, the emotional considerations may far outweigh the financial incentives.
Where do you sit with the government’s ‘incentives’? Do you find the whole subject too confusing or are you planning to take advantage of the new arrangements?