A potential federal budget measure granting retirees an exemption to the $1.6 million transfer balance cap and $1.6 million total super balance rules for downsizing by selling the family home has been backed by the SMSF Association.
“Incentives to encourage people to downsize their home is a sensible idea,” SMSF Association head of policy Jordan George told selfmanagedsuper.
“This idea is not new; it’s one that we’ve seen previously – the ALP had a similar program announced back in 2013 and, as an association, we supported it then and so we will support this one.
“It will give people with superannuation flexibility to downsize their family home and then shift those funds into super and that’s a good move to make the system more flexible to accommodate people’s changing circumstances.
“It’s something that was a bit of a surprise to hear this morning and it’s not unusual in any budget period that we start to see these sorts of ideas float around or be leaked ahead of it.”
While the exemption was a good idea in principle, George said it was crucial to consider any ramifications of such a measure for people’s entitlements.
“The assets test for the age pension when people downsize and the profit from downsizing may affect their entitlement to the age pension – that could become a significant issue,” he noted.
“So it’s not necessarily just super that needs to be looked at, but social security testing has to be a part of [your considerations] too.”
He also warned the potential exemption was the government’s response to the country’s housing affordability problem and should not be regarded as a possible replacement for or compromise to the limited recourse borrowing arrangement (LRBA) measure, or recently revived LRBA ban suggestion, within the incoming super changes.
“This is part of the government’s broader discussions around housing affordability policy and I believe this is a separate issue in terms of what the government’s looking at for LRBAs and the existing reform package,” he said.
“So what they’re aiming to do here is very much allowing people the ability to contribute to super once they sell their house or use that money to start pensions without it being caught by the $1.6 million transfer balance cap, which is separate to the LRBA issue and how LRBAs could potentially count towards the transfer balance cap or to the total super balance.”
Opposition leader Bill Shorten recently suggested a ban on the use of direct borrowing by SMSFs could be on the table as a measure to help cool an overheated housing market.
Earlier this month, the government mooted significant changes to the super laws that would count assets acquired under an LRBA towards an individual’s transfer balance cap and total superannuation balance.
The industry expects exposure draft legislation on the LRBA decision to be released in the coming weeks.
