From 1 July 2018, people who are 65 years or older and meet the eligibility requirements can make “downsizer contributions” into their superannuation fund of up to $300,000 per person, from the proceeds of selling their home.
This measure was part of a package announced in the 2017/2018 Budget designed to reduce pressure on housing affordability. Whilst that may be the overall goal, the measure also has the effect of enabling superannuation contributions later in life.
There are several eligibility criteria:
- You must be 65 years or older when making the contribution;
- The amount contributed is from the proceeds of sale of your home for all contracts dated on or after 1 July 2018;
- Your home must have been owned by you or your spouse for at least 10 years prior to the sale;
- Your home is in Australia and is not a caravan, boat or other mobile home;
- Your home must have been your main residence (and so be eligible for at least a partial capital gains exemption) at some point during the period of ownership;
- You make your downsizer contribution within 90 days of receiving the proceeds of sale;
- You have not previously made a downsizer contribution (ie. this is available for a person only once); and
- You provide your super fund with a completed Downsizer contribution into super form before or at the time of making the contribution.
A downsizer contribution is a special contribution that means that the normal rules that apply to superannuation contributions do not apply to them. So no matter what your superannuation balance, whether you are working or not, and whether you have made other sorts of superannuation contributions in the financial year, provided the above criteria are met, the downsizer contributions can be made.
Also, and despite the name, there is no requirement to actually downsize and purchase another home. You can for example move into another residence you already own.
In relation to many of the requirements above timing is the key.
For example, George and Lillian are a couple and bought their current house in May 2009, which is their main residence. George is 65 but Lillian does not turn 65 until October 2019. The house is worth $550,000. They would like to sell their home and move into a unit that they own which is currently being used as a rental property.
To take advantage of the downsizer measure, George and Lillian should ensure that they do not sign a contract for the sale of their home until May 2019, so that they can meet the 10 year ownership requirement.
Let’s assume that they sign a contract in May 2019 for $550,000. The sale is due to settle in June 2019.
As they meet the 10 year ownership requirement, George can make a downsizer contribution of $300,000, but Lillian can only make a contribution when she turns 65. As the sale settles in June, Lillian will still not be 65 within 90 days of when the proceeds become available.
Therefore, to fully take advantage of the measure, George and Lillian should arrange for a slightly extended settlement date, to ensure that Lillian turns 65 within 90 days of when the proceeds are available. If they do that, then the entire amount of $550,000 can be contributed – $275,000 each, or any combination, provided that no person contributes more than $300,000.
There are a few tips and traps when dealing with downsizer contributions, so if this is something that may apply to you, please contact us to ensure that you meet all the eligibility requirements.
McConachie Stedman Financial Planning is an Authorised Representative of Wealth Management Matters Pty Ltd | ABN 34 612 767 807 | AFSL 491619