Approaching retirement or already retired?

Here are some changes to legislation that may impact you:
—Down sizer eligibility reduced to age 55
—Home proceeds exemption and the age pension
—Assistance for working age pensioners

Downsizer eligibility to make super contributions reduced to age 55
From 1 January 2023, eligible individuals aged 55 years or older can choose to make a downsizer contribution into their super fund of up to $300,000 per person ($600,000 per couple) from the proceeds of selling their home.
There are no changes to the remaining eligibility criteria.
Important notes and time limit:
—Individuals have 90 days from receiving the sale proceeds of their home to make a downsizer contribution.
—A valid notice to treat the contribution as a downsizer contribution must be submitted no later than the time the contribution is received by the fund. It is not possible to retrospectively elect to treat a personal contribution as a downsizer contribution so best to send in the notice before you make this contribution.

The downsizer contribution is in addition to the other super contributions allowed i.e. concessional contributions up to $27,500 and non-concessional contributions up to $300,000 (using the bring-forward provisions).

This provides an opportunity for a couple who are downsizing their home to contribute up to $1.2M into super after sale of their home.

Home proceeds exemption and the age pension
An assets test exemption may apply to proceeds from the sale of the principal home. The exemption applies to the portion of those proceeds which are intended to be used to purchase, build, rebuild, repair or renovate a new principal home. Currently, this exemption period was 12 months and has been extended to 24 months from 1 January 2023.

The exemption only extends to the amount that is intended to be used for these purposes. For example, if a client is downsizing and only 70% of the home proceeds will be utilised for the new home, the assets test exemption is limited to this amount.

The exempt proceeds that are held in a financial investment, such as a bank account, are subject to deeming under the income test and are deemed at the lower deeming rate only (currently 0.25%). For this reason, the exempt sale proceeds need to be isolated from other financial assets.

The lower deeming rates and isolation of this amount will apply during the exemption period only. Once the exemption has ceased, the proceeds merely form part of the pool of all financial investments and normal deeming applies.

Discretion by Centrelink to extend further
Under the current rules, it is possible to have the assets test exemption period extended for an additional 12 months if certain criteria are satisfied.
The criteria used to grant an extension remains unchanged and requires the client to continue to have an intention to purchase a new principal home and:
—have made reasonable attempts to purchase, build, rebuild, repair or renovate their new home
—have made attempts within a reasonable period after selling the principal home, and
—any delays experienced are beyond their control.
All the criteria must be met to be considered for the additional 12-month extension.

Assistance for working age pensioners – $4,000 work bonus increase
Legislation has passed that allows Age Pensioners to participate more in the workforce.

On 1 December 2022, a one-off $4,000 income credit was added to the Work Bonus income bank of those in receipt of an Age Pension, Disability Support Pension or Carer Payment. Under the Work Bonus, the first $300 of fortnightly income from work is not assessed under the pension income test. Any unused part of the $300 fortnightly Work Bonus accrues in the Work Bonus income bank and can be used to offset future income from work. Currently, the Work Bonus income bank is capped at $7,800. This has been temporarily increased to $11,800 until 31 December 2023.

From 1 January 2024, any amount in the Work Bonus income bank that exceeds $7,800 will be removed and no longer available to offset future income from work.

Therefore, for income tested clients who are eligible for the Work Bonus and earning more than $300 per fortnight may see a temporary increase in entitlements. Those earning less than $300 per fortnight may consider temporarily taking on additional paid work without impacting their Centrelink entitlements.

Seek Advice
If you are approaching retirement or already retired and considering downsizing your home or returning to part-time work, contact Prudentia Financial Planning for advice on how to make the new rules work for you.