Are you over 55 and considering selling your home?
You could be eligible to contribute up to $300,000 from the sale of your home, to your superannuation fund with the Downsizer Contribution scheme.
Now that the age limit has been reduced from 60 to 55, more people have the opportunity to take advantage of the Downsizer Contribution scheme.
What is a ‘downsizer’ contribution?
From 1 January 2023, those 55 and over can make a downsizer* contribution to their superannuation.
This means you can contribute $300,000 from the proceeds of the sale of your home to your superannuation.
Downsizer contributions are excluded from the existing age test, work test and the transfer balance threshold (but are limited by your transfer balance cap).
For couples, both members can take advantage of the concession for the same home. If you and your spouse meet the criteria, both of you can contribute up to $300,000 each ($600,000 per couple). This applies even if one of you did not have an ownership interest in the property that was sold (assuming they meet remaining criteria).
Sale proceeds contributed to superannuation under this measure count towards the Age Pension assets test.
The downsizer contribution scheme can only be made once in a lifetime. It is important to ensure that this is the right option for you.
Let’s take a look at the eligibility criteria:
- You must be 55 years or older (from 1 January 2023) at the time of making the contribution.
- The home was owned by you or your spouse for 10 years or more prior to the sale. (The ownership period is generally calculated from the date of settlement of purchase to the date of settlement of sale.)
- The 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 post-CGT asset rather than a pre-CGT asset (acquired before 20 September 1985). Check with us if you are uncertain.
- You provide your superfund with the Downsizer contribution into super form (NAT 75073) either before or at the time of making the downsizer contribution.
- The downsizer contribution is made within 90 days of receiving the proceeds of sale, which is usually at the date of settlement.
- You have not previously made a downsizer contribution to super from the sale of another home or from the part sale of your home.
Be aware that there are further intricacies to the scheme, so it’s important to get in touch with your accountant or advisor if you are considering selling your home to make downsizer contributions.
Do I have to buy another smaller home?
*The name ‘downsizer’ is a bit of a misnomer. To access this measure you do not have to buy another home once you have sold your existing home. You are also not required to buy a smaller home. You could buy a larger and more expensive one if you wanted to.
Important things to consider.
There are a few things we urge you to consider before making the decision to utilise the Downsizer Contribution scheme:
- What is the selling cost of the property (CGT? Stamp duty? Commission?)
- Should the property/asset be kept and maintained in the family group?
- What will the cash contribution be invested in when in Super?
- Are there more effective ways the sale proceeds could be used/invested?
I want to use this scheme! Should I sell straight away?
Downsizer contributions are classed as non-concessional contributions, so no tax is payable as they go into the fund. They also don’t come under any Contribution Cap (neither the $110k per year or the $330k when you bring forward the next 2 years as well).
However, when the contributions land in your superfund, they form part of your Total Super Balance (TSB), which could affect your contribution eligibility in future years. It is important that if you are utilising this scheme, the timing is right. If you are unsure, get in touch with us, we can help.
As we venture to the end of the financial year, you may wish to consult your advisor ASAP to decide if now is the right time to sell. Making contributions to your superannuation can result in significant savings at tax time.
Alternatively, you may wish to hold off selling your property and utilising the scheme until after 30 June 2023. Carry forward concessional contributions may be used in the next financial year to maximise your contribution and tax savings.
The downsizer contribution scheme is a valuable opportunity to boost your super balance. However, everyone’s situation is unique and there are several factors to consider before making any major financial decisions. Although the scheme may seem like a straightforward strategy, there are several requirements and nuances that you must be aware of when utilising these rules.
We urge you to talk to your adviser to discuss your circumstances and determine if the scheme is right for you.
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