February 2024 – Accounting and SMSF Roundup

February Round up

Keeping you up-to-date in February 2024, we explore crucial aspects of property ownership, diving into the differences between joint tenants and tenants in common. Additionally, we shed light on the downsizer contribution rules, allowing those 55 and above to boost their superannuation. Don’t miss the insights on the last year for the five-year catch-up contribution rules, offering valuable tips for financial planning. Whether you’re a property buyer or planning for retirement, this edition has essential information for you. Read on to stay informed and make well-informed decisions.

  1. Understanding Joint tenants versus Tenants in Common
  2. Boost your superannuation with the superannuation downsizer
  3. Plan now to take advantage of 5-year carry forward rule

Joint Tenants and Tenants in Common

When buying a property with another person, you are given the option of how to be registered on the title of the property with them: joint tenants or tenants in common. But what is the difference between the two, and is one better than the other? In this article, we explain everything you need to know.

What is Joint Tenants?

Joint tenants means you own 100% of the property jointly with the people registered as joint tenants with you.

Practically this means:

  • When joint tenants die, the surviving owner(s) automatically become entitled to be registered as the sole owner(s) of the whole of the interest in the property. This means that any property owned in joint tenancy do not form part of a deceased’s estate, rather their interest automatically goes to the surviving owner(s). This is called “the right of survivorship”.
  • You even split the property’s profits, losses, and risks.
  • You cannot have an uneven share of the property. All joint tenants own the property 100% jointly. For tax purposes, the shares are even.

What is Tenants in Common?

Tenants in common means you have a defined ownership share of a property title. This can be 50-50, 60-40, 99-1 or any other combination.

Practically this means:

  • On the death of either of the owners, the deceased’s interest in the property passes to his or her beneficiary (not necessarily the surviving owner on the title). The beneficiary is dictated by the deceased’s Will or if they do not have a Will by State law.
  • The defined ownership share splits the property’s profits, losses, and risks.

Can you do both Tenants in Common and Joint Tenants at the Same Time?

Yes, you can if you have three or more owners on the title. For example, persons A and B hold a 50% share of the property as tenants in common jointly, while person C holds their 50% share as a tenant in common individually.

Practically this means:

  • On the death of either person A or B, who holds their 50% share jointly, the survivor of A or B will get the full interest of the deceased share. Person C will not have any claim to this share as they did not hold that 50% share jointly.
  • If Person C passes away, Persons A and B will have no automatic interest in Person C’s share of the property. Rather, person C’s share in the property will go to their beneficiary in accordance with their Will or State law if no Will exists.

Touch base with us if you would like more advice about the ownership structure you should adopt when acquiring property.

Superannuation Downsizer

Are you looking to boost your superannuation balance as you near retirement?

Put simply, the intention of the downsizer contribution rules is to allow older Aussies to sell their current home and use the proceeds to contribute to their super account.

Starting 1 January 2023, new rules have lowered the minimum eligibility age to allow people aged 55 and over to access downsizer contributions. Originally, the minimum age was 65, but this has progressively been lowered to age 55.

The lower age limit (55 years) is based on your age when you make the contribution, and there is no upper age limit. Normally, once you reach age 75, the super rules prevent you from making voluntary contributions, so a downsizer contribution presents a rare opportunity to top up your super.

Contribution limits

Under the downsizer rules, you are allowed to contribute up to $300,000 ($600,000 for a couple) from the sale proceeds of your eligible family home.

The contribution limit is the lesser of $300,000 and the gross actual sale proceeds. This means if you gift your home to a family member and the sale proceeds are $0, you cannot make a contribution.

Any debt or remaining mortgage on the property does not impact the amount you are permitted to contribute to your super account.

Eligible homes

While the downsizer rules are generous, ensuring your home is eligible before you sell is essential.

The key criteria are:

  • You must have owned your property for a continuous period of at least 10 years. This is usually measured from the date of your original settlement when you purchased the property to the settlement date when you sell it.
  • The property being sold must be your family home (main residence) at the time of the sale, or it must be partially exempt from capital gains tax (CGT) under the main residence exemption.
  • The home you sell must be in Australia.

Some types of property are not eligible under the downsizer rules. These include an investment property you have not lived in, caravans, houseboats and other mobile homes. Vacant blocks of land are also ineligible.

If you sell your home and want to make a downsizer contribution, you are not required to buy a new home with any sale proceeds. That is, there’s no requirement to buy a cheaper or smaller home after making your downsizer contribution, so you can even decide to purchase a more expensive replacement home.

Time frame of making the contribution

The contribution must be made within 90 days of receiving the proceeds of sale, usually at the date of settlement.

How to make the contribution

First off, you must contact you super fund to see if they will accept the downsizer contributions. Assuming they do, you will have to submit Downsizer contribution into super form to your fund(s) with or before your contribution is made. If you don’t, your fund may not be able to accept your contribution as a downsizer contribution.

Plan now to take advantage of 5-year carry forward rule

By Keeli Cambourne (2 February 2024)

This is the last year that the five-year catch-up contribution rules for concessional contributions can be used for those who are eligible, warns a leading educator.

Meg Heffron, director of Heffron, said trustees who started using the scheme in its first financial year in 2018–19, now need to start planning regarding their next steps.

“This year is slightly unusual in a couple of respects when it comes to contributions. That makes it even more important to get the planning right well before 30 June 2024,” she said.

“Perhaps most importantly, for those eligible to use the five-year catch-up contribution rules for concessional contributions, this year (2023–24) is the last year in which the unused cap carried forward in the very first year of the scheme (2018–19) can be used. Next year, it drops off because these amounts can only be carried forward for five years.”

Ms Heffron gave an example of how these changes will work for a fictitious client called Anna, who had $400,000 in super at 30 June 2023, meaning she can use the catch-up rules this year if she wants.

Anna doesn’t sacrifice her salary but has compulsory contributions from her employer. She earns $150,000 per annum and is in a high tax bracket (37 per cent), plus the Medicare levy, and is looking to make some tax deductions.

In 2018–19, Anna only used part of her concessional contributions cap and has $10,000 left, which she can use this year, but if she doesn’t by 1 July 2024, the opportunity will be gone and she can only use the caps she has left over from 2019–20 onwards.

“It’s important to note she would need to use all of this year’s cap ($27,500) first before being allowed to use the $10,000 she has left from 2018–19 and unfortunately she can’t elect to use that $10,000 while carrying forward some of her 2023–24 concessional contribution cap for future use,” Ms Heffron said.

“But if she can manage it, there’s a $10,000 tax deduction up for grabs in 2023–24 that will otherwise go begging.”

Ms Heffron said if Anna doesn’t use the $10,000 from 2018–19 this year, she should plan to do so in future years, as each year going forward, another unused amount from five years ago will drop away. Once her balance goes over $500,000, she won’t be able to use any of the previous years’ cap amounts that she’s carried forward.

Ms Heffron added there is a strategy Anna can use if she has a partner who has not used their old concessional cap amounts.

For example, if Anna’s partner has $600,000 in super, Anna could consider “splitting” all her concessional contributions, even her super guarantee contributions, with her partner.

“In effect, they come into her super account during the year but get moved to the partner’s in the following year which will allow her to keep adding money to super using all possible tax deductions without growing her balance too quickly and ruling her out of using the carry forward rules,” Ms Heffron said.

“Once Anna has more than $500,000 in super, her partner can return the favour and split their future concessional contributions to Anna which would also make sense if her partner didn’t have any unused concessional cap amounts to carry forward or if their super contributions were subject to Division 293 tax.”

Ms Heffron said the stage 3 tax cuts will make a difference to the tax paid by people on high incomes and although they may not be getting as large a tax break as originally planned, the principles are the same.

“In a way, that incentivises them to contribute as much as they can this year via concessional contributions because the deduction is worth more in 2023–24 than 2024–25,” she said.