Q: My husband and I are looking to sell our family home and move into a smaller property. We retired 10 years ago and are in our 70s. We have been advised we can put some of the proceeds of the property sale into Super. How does this work?
A: As part of the 2017-18 Budget, the Government announced the “Superannuation Downsizer Contribution” for those looking to sell a family home in retirement and invest the proceeds into Superannuation.
From 1 July 2018, individuals aged 65 and over will be able to make personal (Non-Concessional) contributions into their Super of up to $300,000 from the sale of their home.
To qualify, the property must have been your current or former principal place of residence. You must have owned the property for a minimum of 10 years however you are not obliged to have lived in the property for the full 10 years.
For those who are eligible to make the Superannuation Downsizer Contribution, the existing Superannuation contribution rules for people aged 65 and older will not apply. Therefore there will be no need to satisfy a work test for those aged 65 and those over age 75 are eligible to contribute. Additionally, restrictions on Non-Concessional contributions for people with balances above $1.6 million will not apply under this new initiative.
Whilst the eligibility rules for contributing to Superannuation have been relaxed, the $1.6 million cap on tax free retirement income streams will still apply.
Both members of a couple will be able to take advantage of the Superannuation Downsizer Contribution “Cap”. Meaning that a couple could contribute up to $600,000 ($300,000 each) to Superannuation provided they are both over age 65. There is no obligation for you both to have been on the property title, just that one of you was on the title.
You are eligible to sell any type of property provided it is located in Australia. However, Caravans, Houseboats or Mobile homes are specifically excluded. There is no obligation to make a subsequent property purchase.
Whilst there is a cap of $300,000 per person, the limit of the Superannuation contribution is the value of the property sale. So if you sold the family home for $570,000, the limit would be $570,000 for the couple, provided no more than $300,000 was contributed per person. If an individual was to sell a property for $250,000, then $250,000 would be the limit.
Superannuation Downsizer Contributions would be required to be made to a Superannuation fund within 90 days of settlement of the property. Extensions to this deadline may be sought from the Australian Taxation Office (ATO).
You may make multiple contributions within the 90 days provided that in aggregate the contributions are within the caps and meet all other criteria. However, the Superannuation Downsizer Contribution is limited to the sale of one property only, even if you sold a subsequent qualifying property. Any unused portion of the downsizer contribution cap will not carry forward.
In order to take advantage of the Superannuation Downsizer Contribution, the contract of sale must be entered into on or after 1 July 2018. Therefore exchanging contracts on the property prior to 1 July 2018 would void any entitlement to utilise the Superannuation Downsizer Contribution, so be careful.
The Superannuation Downsizer Contribution is a non-concessional contribution, therefore, there are no tax deductions for making the contribution.
As to whether using the Superannuation Downsizer Contribution is of benefit to you will largely depend upon your personal circumstances including; your income needs, your taxable income, the scale of your current Superannuation investments and your Estate Planning needs.