Q. My wife and I are in our late 70’s and are looking to downsize the family home and move into a smaller property. We wish to take advantage of the new rules for Superannuation Downsizer Contributions. How does it work?
A. 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.
The existing Superannuation contribution rules for people aged 65 and older; work test for those aged 65-74 and no contributions for those aged 75 and over do not apply to Superannuation Downsizer Contributions. Additionally, restrictions on Non-Concessional contributions for people with balances above $1.6 million will not apply under this new initiative.
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; Caravans, Houseboats or Mobile homes are specifically excluded.
Whilst there is a cap of $300,000 per person, the limit of the contribution is 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 however they are not obliged to have lived in the property for the full 10 years. 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. Therefore contracts exchanged prior to 1 July 2018 would not qualify.
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.
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 Super fund 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 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. Even though you may make multiple contributions within the 90 days of settlement, you are limited to one Superannuation Downsizer Contribution from the sale of a property, even if you sold a subsequent qualifying property.
In submitting your “ Downsizer Contribution into Superannuation form”, you are confirming that you have met all eligibility requirements. Downsizer contributions identified as ineligible will be re-reported as personal contributions 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.