Q. My husband and I are in our late 60’s and are looking to sell the family home and move to the inner city. We wish to take advantage of the Superannuation Downsizer Contribution rules. How does it work?
A. Under the downsizer contribution rules, individuals aged 65 or older are now able to make personal super contributions of up to $300,000 using the proceeds from the sale of their home.
Conventional Superannuation contribution rules for people aged 65 and older; i.e. the need to meet a work test for those aged 65-74 and no contributions for those aged 75 and over do not apply to Superannuation Downsizer Contributions. Additionally, the restriction on Non-Concessional contributions for people with a total super balance above $1.6 million will not apply.
Both members of a couple are 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. There is no obligation for you both to have been on the Property title, just that one of you was on the title. There are limited restrictions on the type of property being sold; Houseboats, Caravans or Mobile homes are specifically excluded.
Whilst there is a maximum cap of $300,000 per person, the amount able to be contributed is limited to the value of the property sale. So if you sold the family home for $540,000, the limit would be $540,000 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.
To qualify, individuals must have owned their property for a minimum of 10 years, although they are not obliged to have lived in the property for the full 10 years. Having said that, the property must be eligible for at least a partial main residence exemption. You are also not obliged to make a subsequent property purchase.
In order to take advantage of the Superannuation Downsizer Contribution, the contract of sale on the qualifying property must be entered into on or after 1 July 2018, extended settlements entered into prior to 1 July 2018 would not qualify. Further, there are timing and administrative requirements that must also be met (refer to the next question).
Superannuation Downsizer Contributions will not be eligible for a tax deduction and are treated in much the same was as a non-concessional 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. It should also be noted that selling your home and freeing up capital in this way may impact on your Centrelink entitlements.
Q. How do I make a Superannuation Downsizer Contributions into Superannuation?
A. When making a downsizer contribution, you need to complete an Australian Taxation Office (ATO) “Downsizer Contribution into Superannuation form” and submit this with your contribution to your Superannuation fund. Alternatively, your Superfund may have their own approved form. The form includes your personal details and Tax File number.
Superannuation Downsizer Contributions must be made to a Superannuation fund within 90 days of settlement of the property. Extensions to this deadline may be sought from the ATO.
You may make multiple downsizer contributions within the 90 days provided that in aggregate the contributions are within the $300,000 individual limit and you meet all other criteria. You are obliged to submit a separate ATO form for each contribution. Further, even though you may make multiple contributions within the 90 days of settlement, Superannuation Downsizer Contributions are limited to using the proceeds from the sale of one property only.
In submitting your “Downsizer Contribution into Superannuation form”, you are confirming that you have met all eligibility requirements. Downsizer contributions subsequently identified as being ineligible will either be returned to you or, if the fund was otherwise able to accept the contribution, will be re-reported as a non-concessional contribution which may result in you exceeding your non-concessional contributions cap and render you liable for administrative and tax penalties.
Before you decide to make a downsizer contribution, you should confirm you meet the eligibility requirements. Contact your super fund to confirm that they accept downsizer contributions. If you don’t have an open account with a super fund, you will need to open a new super account to make your contribution.
There may be important additional consequences when downsizing your family home that you may wish to take into consideration. For example, any money invested into Super would count as an asset for Age Pension Asset Test purposes.
You should seek financial advice in relation to this matter to ensure you understand any consequences and how appropriate the strategy will be for you.