Nick Bruining Q+A: Sold your home? Here’s the option to get the proceeds into superannuation tax-free

Question

We sold our family home about six months ago, but because we had only owned it for four years we were unable to pay the proceeds into superannuation.

We plan to use the money to buy another home when the prices fall further.

The money is parked in a bank account paying 7.5 per cent interest, but that is not enough to live on.

Before we go to Centrelink to claim a part-pension, is there anything we can do with the money to boost our chances?

Answer

You may have mixed up the complicated Centrelink exemption rules with the equally complicated super contribution rules.

As far as Centrelink is concerned, there is a special asset-test exemption for the proceeds of your primary dwelling for up to two years, provided it will be used to buy or build a new home.

To qualify for the exemption, the proceeds must be designated as being for the sole purpose of your new home. In some circumstances, such as a building delay, the exemption can be extended for a further 12-month period.

You simply need to identify that money when you lodge your claim. It will, however, be included in deeming calculations at the lower rate of 1.75 per cent a year and it is likely your pension will be reduced through the income means test.

If renting, you may qualify for rent assistance as well.

Depositing money into super accumulation phase once you reach age pension age of 67 provides no relief as far as Centrelink is concerned.

Your other reference to four years implies you were considering making use of the $300,000 super downsizer contribution. This requires you to have been in the property for at least 10 years and the contribution must be made within 90 days of settlement.

You could also use the three-year “bring forward rule” which allows you make a single non-concessional contribution of up to $390,000 each. That assumes you have not made use of the concession in the past three years and your individual balances are under $2.1 million.

Finally, it is highly unlikely that your 7.5 per cent investment is a bank account. It is almost certainly a non-guaranteed private credit investment. Make sure you fully understand the underlying risk of the investment.

Question

My husband retired last Friday, and this was before he turns 65 in November.

For the past six months or so, most of his superannuation has been in transition-to-retirement mode, with the small remaining amount held in accumulation phase within our self-managed super fund.

He has annual leave owed to him which he will take as fortnightly payments until it runs out, rather than as a lump sum.

At what point can we switch the TTR and/or the SMSF to pension mode?

Answer

Congratulations on your husband’s retirement.

The rules affecting his ability to access super are the same for either SMSFs or schemes governed by the Australian Prudential Regulation Authority.

As he has elected to extend his working life through to the end of his accumulated leave entitlements, he is still “employed”.

In addition to his regular fortnightly employment income, he will continue to receive the compulsory 12 per cent superannuation paid by your husband’s employer.

To be able to convert from a TTR to a normal account-based pension, he must satisfy a condition of release. The date he becomes eligible is the date you can apply “normal” ABP rules. You would need to document this change of status for the SMSF records.

There are two conditions of release that might apply. As he is over the age of 60, he only needs to “cease gainful employment since turning 60”.

As he remains employed until the end of April, he could cease any other job and meet the condition of release.

Probably the easiest option will be on his 65th birthday in November. Providing the SMSF trust deed permits it, reaching 65 is an automatic condition of release.

Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association