Upsize your super with downsizer contributions

New legislation allows retirees to top up super following the sale of their home

For many retirees, the family home is one of their most valuable assets – so releasing some of this equity, by downsizing, can be a great way to boost the retirement coffers when it’s most needed. Unfortunately, under current legislation, many retirees are not permitted to use this windfall to top up their super.

But this will change from 1 July 2018 when people aged 65+ can make additional super contributions of up to $300,000 per person from the proceeds of the sale of their home.

These are known as ‘downsizer contributions’ and they can be made on top of the existing contribution caps, without having to meet certain contribution rules and restrictions.

The opportunity

The downsizer contribution rules remove some of the barriers that prevent or restrict the ability to make super contributions at age 65 or over.

Provided certain other conditions are met (see below) eligible people will be able to contribute up to $300,000 per person (or $600,000 per couple) from the proceeds of selling their home.

The contributions won’t count towards the normal contribution caps and there is no maximum age limit. Importantly, the ‘work test’ (for people aged 65 to 74) won’t apply.

Key requirements

There are a number of conditions that will need to be met to be eligible to make downsizer contributions, including:

  • The individual must be aged 65 or over at the time the contribution is made.
  • The property must have been owned by the individual or their spouse (but not necessarily both) for at least 10 years prior to the disposal.
  • The contract for sale must be entered into on or after 1 July 2018.
  • The property must qualify for the main residence capital gains tax exemption in whole or part, so properties held purely for investment purposes won’t qualify.
  • No tax deduction can be claimed for the contribution.

Other conditions also apply. For more information, please visit the ATO website at www.ato.gov.au

Key considerations

There are some key issues that should be considered when assessing whether making downsizer contributions could be a suitable strategy, including:

  • The property being sold to fund the contributions doesn’t have to be the current home. It can be a former home which meets the requirements. Also, a new home doesn’t need to be purchased.
  • Once contributed, downsizer contributions will count towards the ‘total super balance’ which could impact capacity to make future contributions.
  • Downsizer contributions can’t be transferred into a tax-free ‘retirement phase income stream’ if the ‘transfer balance cap’ has been used up. The transfer balance cap is $1.6 million in 2017/18.
  • If the transfer balance cap has already been used up, the contribution must remain in the ‘accumulation phase’ of super, where investment earnings are taxed at a maximum rate of 15%.
  • Money held in the accumulation or retirement phase of super is assessed for both social security and aged care purposes.

Could you benefit from downsizer contributions?

If you are thinking about selling your home after 1 July 2018, we can help you decide whether making downsizer super contributions is a suitable strategy for you and assess other options.

 

Important information and disclaimer: Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Accordingly, reliance should not be placed on the information contained in this document as the basis for making any financial investment, insurance or other decision. Please seek personal advice prior to acting on this information.

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