Theo’s property decision
Theo retired in 2018 at age 67 and is now 73. Thanks to being in a super plan since he was 18, he has built a comfortable retirement nest egg of around $1 million for himself and his wife, Amy.
Amy retired 20 years ago and receives an annuity of $700–$800 per fortnight, along with savings from an inheritance and a lump sum payout from her retirement. The couple owns their home outright—Theo purchased it in the 70s before they married.
They also have two rental properties. One is fully paid off, and the other has a mortgage, but Theo has enough in the bank to pay it off, so he doesn’t pay any interest on the loan. Both properties were purchased after capital gains tax (CGT) rules were introduced and have been investment properties from the beginning.
Now, Theo is considering selling one of the properties and wants to know:
- Can he contribute some of the proceeds to super?
- Would this need to happen before CGT is calculated?
- Could he contribute some to his wife’s super or even start a new super account for her?
Understanding Theo’s options
1. Contributing sale proceeds to super
Since Theo is between 67 and 74, he can still make personal contributions to super without meeting the work test. However, if he wants to claim a tax deduction, he must meet the work test requirement of being gainfully employed for at least 40 hours in a 30-day period in a financial year.
2. Downsizer contribution is ruled out
Theo may be wondering whether he can take advantage of the downsizer contribution, which allows individuals aged 65 and over to contribute up to $300,000 from the sale of their home into super. However, this only applies to a primary residence—not investment properties.
3. Tax implications of the sale
Since Theo’s rental property has always been an investment, it will be subject to CGT. The amount of CGT payable will depend on factors such as the original purchase price, any capital improvements, and how long he has owned the property. He may be able to reduce his CGT liability by offsetting capital gains with any eligible deductions. However, any contributions to super from the sale will come from the net proceeds after CGT is applied.
What about Amy’s super?
Theo also asked whether he could contribute some of the proceeds to his wife’s super or open a new account for her.
Since Amy has already turned 75, her ability to contribute is limited. She is also ineligible for the downsizer contribution unless the property being sold is their home. Additionally, non-concessional (after-tax) super contributions are generally not permitted for people over 75 except for a small window period of 28 days after the month the person turns 75.
What’s the best strategy?
Theo’s situation is complex, and the best approach depends on his long-term retirement goals, tax position, and superannuation strategy. Sharing general rules was helpful for him, but he may need some more specific advice to better:
- Understand the CGT implications of selling his property
- Explore whether contributing proceeds to super is the right move
- Assess how the sale might affect Age Pension entitlements
Retirement Advice Consultations can help you understand tax implications, super contribution options, and the impact on your Age Pension.
Have you considered selling an investment property in retirement?
If so, are you across the way this will combine with an Age Pension, your super and other investments?
