Q: My wife and I are looking to sell our family home and move into a smaller property. We retired 15 years ago and are in our early 80s. We have been advised we can put some of the proceeds of the property sale into Super. How does this work?
A: From 1 July 2018, individuals aged 65 and over are able to make personal contributions into their Super of up to a “cap” of $300,000 using the proceeds from the sale of their home. This is referred to as a Superannuation Downsizer Contribution.
Broadly, in order to qualify, the property must have been your current or former principal place of residence. And, 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 meet the ownership criteria, the existing Superannuation contribution rules for people aged 65 and older do not apply. Therefore there will be no need to satisfy a work test for those aged over 65, and those over age 75 are eligible to contribute. Similarly, restrictions on Non-Concessional contributions for people with balances above $1.6 million do not apply.
Whilst the eligibility rules for contributing to Superannuation in these scenarios have been relaxed, the $1.6 million cap on how much can be transferred into retirement income streams continues to apply.
Both members of a couple are typically 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 $490,000, the limit would be $490,000 for the couple, provided no more than $300,000 was contributed per person. If an individual was to sell a property for $160,000, then $160,000 would be the limit.
Superannuation Downsizer Contributions are 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.
The Superannuation Downsizer Contribution is similar to a non-concessional contribution, therefore, there are no tax deductions for making the contribution.
And finally, before proceeding with the sale of your current home, it may also be worth considering the potential impact that selling your current home and moving into a less expensive one may have on your Centrelink entitlements.