Downsizing and super contributions – what you need to know

When seeking to generate income in retirement, the superannuation environment is an extremely attractive place in which to house your investments (and all the more so if current proposals to scrap refunds of franking credits comes to pass). This is because it’s a total tax free zone, and once retired you also have complete access to your savings should something unexpected crop up.

So given this attraction, it can be frustrating when the ability to get money into superannuation is constrained. And for those over 65 years of age and retired, the superannuation contribution window has been quite comprehensively closed – until now.

New rules introduced in December 2017 provide for the ability to contribute sale proceeds from your main residence into your super fund. This is a well targeted measure, as it’s common for retirees to want to sell down the large family home and move into something smaller, and very often this downsizing is a key element in funding retirement plans. So in this new world of downsizing and super contributions, let’s take a look at what you need to know:

 

  1. The contract of sale must be after 1 July 2018 – this is a really important point that seems to often be overlooked in the various paper’s I’ve read.
  2. Logically therefore, downsizing contributions can only occur after 1 July 2018.
  3. You must be over 65 years of age.
  4. The maximum that can be contributed is $300,000 per person, and is not part of any other contribution caps.
  5. The amount contributed cannot exceed the total sale proceeds of the home.
  6. You need to have owned the home for 10 years or more prior to settlement.
  7. You can only make a downsizer super contribution once in your life.
  8. If you are entitled to an Age Pension, the house downsize and super contribution could negatively impact your entitlement due to the Assets and Income Test.
  9. Is there any way that proceeds from the sale of an investment property could be used as downsizer super contributions? Surprisingly, yes in limited circumstances. The requirement to be eligible to make a downsizer super contribution is that the property being disposed of to qualify for a full or partial CGT main residence exemption. If the investment property was the clients’ main residence at some point during the ownership period and qualifies for at least a partial CGT main residence exemption, it meets the downsizer contribution qualification criteria.
  10. The downsizer contribution needs to be made within 90 days of the change of ownership of the property.
  11. There is no legislative requirement to purchase a home of a lesser value or indeed to purchase a new home at all.  As long as the home you dispose of meets the eligibility criteria, you are eligible to make a downsizer contribution of an amount up to the value of the sale proceeds or $300,000 (whichever is lesser).
  12. There is no upper age limit.

 

I hope this list is helpful. Be in touch if we can be any help.

 

Sources – ATO and Colonial First State

 

Important Information:

This information is of a general nature only and has been prepared without taking into account your particular financial needs, circumstances and objectives. While every effort has been made to ensure the accuracy of the information, it is not guaranteed. You should obtain professional advice before acting on the information contained in this publication.