In a bid to encourage older Australians to downsize from their family homes into new homes that suit their changed circumstances, the federal government introduced a measure in its 2017/18 budget. Under the measure, if you decide to downsize your family home, you may be able to contribute a proportion of the proceeds from the sale of your home to your superannuation and boost your retirement savings.
Who is eligible?
According to the Australian Taxation Office (ATO), from 1 July 2018, those aged 65 years or older who meet the eligibility requirements, may be able to make a downsizer contribution into their superannuation of up to $300,000 per person or $600,000 per couple from the proceeds of selling their home (not a caravan, houseboat or other mobile home).
The good news for those looking to downsize is that this contribution is considered ‘non-concessional’, which means it will not count towards the super contribution caps and is not taxed in the super fund. However, downsizer contributions are not tax deductible and will be taken into account when determining eligibility for the age pension.
It’s important to note that downsizing contributions are only valid for the sale of one home. You can’t access it again for the sale of a second home.
Further, either you or your spouse must have owned (not necessarily lived in) the home for a continuous period of at least 10 years prior to the sale of the home. As such, eligible properties could include an investment property that was once your main residence.
Moreover, you must claim the Capital Gains Tax main residence exemption on the home.
You can make multiple contributions however they must all be from the proceeds of a single home and must not exceed the $300,000 cap (or $600,000 per couple).
Do I have to buy a smaller home if I choose to use the super downsizer contribution?
You do not need to downsize to a more affordable or smaller dwelling in order to be eligible for the contribution.
Timing is everything
In order to qualify for the measure, you’ll need to make your contribution within 90 days of receiving the proceeds of sale, typically the date of settlement. You may be able to have this timeframe extended but the extension is at the discretion of the ATO.
The downsizing contribution is a good way for you to boost your superannuation savings but it’s essential you seek expert advice before taking this path as the contribution could have implications to the assets and income tests used to determine your eligibility to the Age Pension and benefits provided by the Department of Veterans’ Affairs.
If you would like to discuss your options in this area, please contact speak to your adviser today.