From 1 July 2018, homeowners aged 65 or over will be eligible to sell their family home and can contribute up to $300,000 of the proceeds into superannuation. The ‘Downsizer Contribution’ was part of the May 2017 Budget reforms, targeted at reducing pressure on housing affordability in Australia.
A major benefit of the downsizer contribution is that it is not a non-concessional contribution and will not count towards your contributions caps. Even if you have a total super balance greater than $1.6 million, the downsizer contribution can still be made.
For individuals aged 65 and over and provided the ‘work test’ is met, the non-concessional contribution cap is $100,000 per financial year. The introduction of the downsizer contribution, allowing an additional $300,000 deposit into superannuation, will be a great technique for growing your assets in the concessionally taxed superannuation system.
Notably, the Treasurer has announced in the 2018-19 Budget that individuals aged 65 – 74 will from 1 July 2019, be able to contribute for twelve months after retirement without having to satisfy the work test if their superannuation balance is less than $300,000.
Additionally, the downsizer contribution will count towards your transfer balance cap. The cap is currently set at $1.6 million and applies when super savings are moved into retirement phase. If you already have $1.6 million or more in retirement phase, the downsizer contribution will add to your accumulation balance with earnings being taxed at 15%.
Retirees may depend solely on their withdrawals from superannuation to survive, which means their personal taxable income will be low or non-existent. In this instance, consideration to the appropriateness in utilising the downsizer contribution technique should be given.
The downsizer contribution can only be made within 90 days after settlement on the sale of one home (other than a caravan, houseboat or mobile home) which has been held at all times for ten years leading up to the sale. A couple may each make a downsizer contribution up to $300,000 (with the combined contribution not exceeding the home’s sale price), even if the spouse was not on the title of the home.
Importantly, the downsizer contribution is not tax deductible and will be taken into account for determining eligibility for the age pension. Should you meet the eligibility criteria and choose to utilise the downsizer contribution, there is no requirement for you to purchase another home or meet the ‘work test’.
The downsizer contribution is a great opportunity to boost your super balance where you are no longer eligible to contribute into superannuation.
This article was co-authored by Ryan Uphill, HLB Mann Judd Melbourne