PROPERTY

The change to the downsizer rule you need to know

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Government support schemes in response to the COVID-19 pandemic have helped working-age Australians, but have done precious little to ease the pain of self-funded retirees.

Many self-funded retirees depend on fixed income assets that have been knee-capped by low interest rates and bond yields. So what can they do?

One option is to make a downsizer contribution to your super.

Low interest rates are hurting retirees trying to make their nest egg go the distance, and it raises the question, "What happens when the money runs out?" super pension bond yields

Until now, the Australian Tax Office (ATO) has permitted those aged 65 or over to make a one-time, non-concessional downsizer contribution of up to $300,000 to superannuation from "downsizing" the home.

Importantly, each spouse can make a one-time contribution of $300,000, so together they can theoretically contribute up to $600,000.

But many people don't want to leave the house they've lived in for years, nor move into a retirement facility.

The ATO has just ruled that the one-time downsizer contribution can also come from disposing of interest in your own home.

But disposing of interest in your home doesn't mean you'll be accepting new housemates. DomaCom provides a platform for doing just this, allowing you to stay in your home as the main title-holder for as long as you like.

It works like this: you sell part of the equity in your home to an investor, via DomaCom, in return for a lump sum or staggered payments. A 4.4% service fee is also charged, which is split between the investor and the platform.

So the homeowner is essentially liquidating part of their house into cash. The outside investor then owns the equity and receives yield from it through the service fee as well as a proportional share of any capital gains should the house be sold down the road.

"They've worked all their lives, built a nest egg, and until a year go it has delivered enough for them to live on," says Arthur Naoumidis from DomaCom .

"Now interest rates have gone to almost nothing and dividends have been slashed; they can't live on income anymore."

Of course, there are risks involved in disposing interest including the need to periodically sell part off further parcels of equity to fund the service fee, termination fees, and a higher buyback value should you wish to repurchase the transferred equity.

But it is an option to top up your super balance or fund your living expenses, in the absence of fixed income performance. And as always, any decision to go down this road will be better informed with professional advice.

More information on the full eligibility requirements to access the downsizer scheme can be found on the ATO website.

We're cutting through the confusion to help you manage your money during the coronavirus outbreak. Click here for more on how COVID-19 could affect your job, budget, super and investments.

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David Thornton is a journalist at Money magazine. He previously worked at Your Money, covering market news as producer of Trading Day Live. Before that, he covered business and finance news at The Constant Investor. David holds a Masters of International Relations from the University of Melbourne.
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