The Australian Tax Office delivered some much-needed positive news during the week, approving fractional property investment platform Domacom’s’ application to broaden the use of the $300,000 downsizer contribution.
Domacom is best known for allowing individual investors, including SMSFs, to purchase portions (or fractions) of property around Australia to diversify their portfolios. It also has a growing track record of challenging the many grey areas associated with the application of superannuation legislation. This announcement was a case in point.
Domacom recent reported that 5,000 retirees had used its Senior Equity Release product in its first-year operation, in a boon for the growing industry. The product, for lack of a better term, is a more flexible and tailored version of a reverse mortgage. Reverse mortgages allow homeowners to release equity in their home, by converting it to cash, usually through the sale of a portion to a bank or credit union. Unfortunately, despite a growing need the sector has never really taken off in Australia. This could now be changing.
The Senior Equity Release product offers all the benefits of a reverse mortgage, being the ability to cash-out some of the value of your home, but rather than being beholden to a bank, it democratises the investment, potentially to a series of DIY investors and SMSF trustees (among others).
Until the ATO’s Administrative Binding Advice Ruling this week, downsizers who sold only a portion of their home under these arrangements were not eligible to contribute the proceeds to superannuation under the new Downsizer rules. In fact, these were only available where the entire property was sold. Following the announcement, those releasing equity in their home by selling only a portion of their ownership will be eligible for the full $300,000 downsizer contribution.
It’s easy to underestimate the important of this announcement, but with Government debt ballooning due to the pandemic, there is little doubt that increasing pressure will be placed on the Age Pension in the years to come. With most people’s home their most valuable and prized asset, there is a natural preference to remain in the home for as long as possible rather than uprooting one’s life in retirement. DomaCom CEO Arthur Naoumidis agrees, suggesting “The ability for retirees to help themselves by modifying their personal balance sheets and moving some of their financial resources tied up in their home to their super will enable them to enjoy a better retirement.”
It’s certainly a good starting point.