Downsizer superannuation contributions
*The contents of this article are general in nature – as always, you should seek financial planning advice before doing anything to alter your financial position.*
From 1 July 2018, the Australian Government will allow “downsizer contributions” into superannuation as part of a package of reforms aimed at reducing pressure on housing affordability in Australia.
This measure applies where the exchange of contracts for the sale of your home (which must be your principal place of residence) occurs on or after 1 July 2018.
If you are 65 or older, and you meet the eligibility requirements, you may be able to choose to make a “downsizer contribution” from the proceeds of selling your home into your superannuation account for an amount of potentially up to $300,000.
Importantly, your downsizer contribution is not a non-concessional contribution and will not count towards your contributions cap, nor do the normal contributions rules apply, such as the “works test”.
Downsizer contributions are not tax deductible and will be taken into account for determining your eligibility for the age pension.
If you do not meet the “downsizer contribution” requirements, then the contribution will be assessed under the normal contributions caps (and penalties may apply).
If considering a downsizer contribution, you should also look to ensure that your estate plan is appropriate and if not, put appropriate arrangements in place.
From 1 July 2018, the Australian Government will allow “downsizer superannuation contributions”
You will generally be eligible to make a downsizer contribution to super if you can answer “yes” to all of the following:
- you are 65 years old or older at the time you make a downsizer contribution (there is no maximum age limit),
- the amount you are contributing is from the proceeds of selling your home where the contract of sale was exchanged on or after 1 July 2018,
- your home was owned by you (or your spouse) for at least 10 years prior to the sale,
- your home is in Australia (and is not a caravan, houseboat or other mobile home),
- the proceeds (capital gain or loss) from the sale of the home are either exempt or partially exempt from capital gains tax (CGT) under the main residence exemption, or would be entitled to such an exemption if the home was a CGT, rather than a pre-CGT (acquired before 20 September 1985) asset,
- you have provided your super fund with the downsizer contribution form, either before or at the time of making your downsizer contribution,
- you make your downsizer contribution within 90 days of receiving the proceeds of sale, which is usually the date of settlement, and
- you have not previously made a downsizer contribution to your super from the sale of another home.
HOW MUCH CAN YOU MAKE AS A DOWNSIZER CONTRIBUTION?
If you are eligible to make a downsizer contribution, there is a maximum amount of $300,000 that can be made.
The contribution amount can’t be greater than the total proceeds of the sale of your home.
It only applies to the sale of your main residence, and you can only use it for the sale of one home. You can’t access it again for the sale of a second home, but there is also no requirement to purchase another home.
You must make your downsizer contribution within 90 days of receiving the proceeds of sale. This is usually at the date of settlement.
You may make multiple “downsizer contributions” from the proceeds of a single sale however:
- they must be made within 90 days of the date you receive the sale proceeds (usually the settlement date of the sale), and
- the total of all your contributions must not exceed $300,000 (or the total proceeds of the sale less any other downsizer contributions that have been made by your spouse).
If circumstances outside your control prevent payment within that time, you can seek an extension of time.
HOW TO MAKE A DOWNSIZER CONTRIBUTION
Before you decide to make a downsizer contribution, you should:
- obtain financial planning advice in relation to the relevant requirements and any effect on your social security benefits or other entitlements (there may be other things to consider with any surplus sale proceeds such as acquiring a “granny flat right” and updating your estate planning documents),
- check the eligibility requirements for making a downsizer contribution,
- contact your super fund to check that it will accept downsizer contributions, and
- complete a downsizer contribution form for each downsizer contribution and provide this to your super fund when making – or prior to making – each contribution
Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to estate planning, business succession, superannuation or SMSFs, contact Craig Pryor on (02) 9521 2455 or email firstname.lastname@example.org.
This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your needs.