There is a little-known opportunity to readily boost your superannuation assets: “downsizer superannuation contributions”. I encourage clients to capture this opportunity, if possible.
Since 1 July 2018, an eligible homeowner aged 65 or over can make a tax-free downsizer contribution of up to $300,000, or up to $600,000 per couple, into superannuation from the proceeds of selling a home. This is regardless of caps and restrictions that may otherwise apply.
This measure may provide an excellent opportunity to boost your superannuation balance.
Am I eligible?
- Are you aged 65 or over*?
- Have you owned your home for 10 years or more?
- Was your home your main residence at some point during the ownership period? Note, there is no requirement for the property to be considered your main residence at the time of disposal.
- Is the home eligible for either a part or full main residence capital gains tax (CGT) exemption?
- Is this the first downsizer contribution you have made?
If you answered yes to all of the above, you may be eligible to make a downsizer contribution.
* We note that the Government has proposed to reduce the eligibility age to make downsizer contributions from 65 to 60 years of age and this is expected to commence from 1 July 2022.
How much can I contribute?
- Up to a maximum of $300,000 (each).
- But no more than the total proceeds of the sale of your home.
- You can make more than one contribution from the sale of a single property, but the total must not exceed this maximum.
- If your home was owned by one spouse, the spouse that did not have an ownership interest may also make a downsizer contribution provided they meet all the other requirements (noted above) and both contributions do not exceed your home’s sale price.
- The downsizer contribution can be funded from any source e.g. cash or in-specie share transfer.
| Example 1 Helen and Richard sell their home for $800,000. Each can make a downsizer contribution of up to $300,000. Example 2 Margaret has a portfolio of listed shares worth $150,000. She sells her home for $500,000. She can make a downsizer contribution of up to a maximum of $300,000 using a combination of her shares and cash. Example 3 Julie and Andrew sell their home for $500,000. Only Julie’s name is on the title. Both Julie and Andrew meet all other requirements. The maximum contribution both can make cannot exceed $500,000 in total. They can choose to contribute half ($250,000) each or choose how they split it – e.g. $300,000 for Julie and $200,000 for Andrew. |
What are the benefits?
- Downsizer contributions provide a way to top up your superannuation balance. This measure provides additional flexibility for superannuation members to top up their retirement savings. This is particularly useful given the current low contribution cap environment.
- May be more tax efficient. The downsizer contribution is an after-tax contribution, so no tax is paid on making the contribution or on withdrawing the funds in the future. Further, as a member’s tax-free component of their superannuation balance will usually increase by the amount of the downsizer contribution, this measure may have estate planning benefits, e.g. if these funds are paid to a non-tax dependant after the member’s death, they will not incur tax on the tax-free component.
- No work test or age limits apply to downsizer contributions. Members aged 67 or over are required to satisfy (or be exempt from) the “work test” to contribute to superannuation. Those over age 75 generally can’t make any additional contributions. For downsizer contributions, these rules don’t apply.
- Annual contribution caps also aren’t applicable. Annual concessional and non-concessional contributions caps don’t apply to downsizer contributions. Further, downsizer contributions can be made in addition to any concessional and non-concessional super contributions you are eligible to make, thereby increasing your opportunities to maximise your superannuation balance.
- Downsizer contributions aren’t subject to the $1.7m total superannuation balance restriction. This measure also enables members to contribute to superannuation even if they have a total superannuation balance of $1.7 million or more, which ordinarily would prohibit any further after-tax contributions.
- Both members of a couple can take advantage. For couples, each member can make the most of the downsizer contribution opportunity, which means up to $600,000 per couple can be contributed into superannuation.
- There are no requirements to ‘downsize’ your existing home and buy a new home. If you sell your home and choose to make a downsizer contribution into superannuation, there is no requirement for you to purchase another home.
Other Considerations
- You only have 90 days after the sale of your home settles in which to make the contribution.
- The downsizer contribution will count towards your transfer balance cap. This cap applies when moving your superannuation savings into retirement phase.
- You can only make a downsizer contribution from the sale of one home (i.e. you are unable to access this concession for the sale of a second home).
- Downsizer contributions are not tax deductible.
- Downsizing your home may impact Age Pension eligibility.
The downsizer contribution is an excellent opportunity to increase your superannuation assets if you meet the requirements .Please contact your Private Client Adviser for more information on how this strategy might be appropriate for you.
The information in this article is of a general nature and does not take into consideration your personal objectives, financial situation or needs. Before acting on any of this information, you should consider whether it is appropriate for your personal circumstances and seek personal financial advice.