Downsizing contribution into superannuation FAQ’s
As of July 1, 2018, homeowners aged, 65 or over will be able to make an additional non-concessional contribution of up to $300,000 from the proceeds of selling their principal residence if owned for 10 years or more. Downsizing contribution into superannuation.
Both members of a couple will be able to take advantage of this measure for the same home; meaning $600,000 per couple can be contributed to superannuation through the downsizing cap.
This initiative is aimed at reducing the barriers to downsizing with the objective being to encourage some older people to downsize from homes that no longer meet their needs and free up housing stock for younger families starting out.
Here are some frequently asked questions to help you understand what it means to you.
Why has the government introduced this incentive?
Older homeowners are currently unable to invest proceeds from selling their home into their superannuation which has been discouraging older people from downsizing. This means that many larger family homes sit occupied by only singles or couples. Encouraging downsizing should enable the more effective use of the housing stock by freeing up larger homes for younger, growing families.
What will be the impact of the new downsizing incentive?
It is hoped that this measure will encourage some people to downsize into housing that is more suitable to their needs, freeing up larger family homes for younger families.
It will assist people aged 65 and over who are currently unable to contribute all or any proceeds of the sale of their home into superannuation because of the existing restrictions and caps.
What property can you sell to get this incentive?
This measure will apply to a principal place of residence held for a minimum of 10 years. Both members of a couple will be able to take advantage of this measure for the same home, meaning $600,000 per couple can be contributed to superannuation through the downsizing cap.
Why do people downsize?
Many Australians downsize their home because of they:
Are approaching retirement
Have become empty nesters
Want to free up some money to enjoy their lifestyle
Are overwhelmed with the upkeep and maintenance of the property
Realize they have just too much empty space
What are the benefits of downsizing?
Reducing the size of your living space has many financial benefits
Reduced mortgage payments
Less real estate taxes
Lowe utility costs
Lower insurance costs
Fewer maintenance costs
Enable you to reduce the clutter and enjoy a simpler life
Enjoy a simpler lifestyle, less cleaning, less work to do in the garden and less cost to maintain
After July 1, 2018, a key benefit is being able to add up to $600,000 per couple into your superannuation fund
How old do you need to be to be eligible for the Government incentive?
You must be 65 years or older to be able to make the additional non-concessional contribution to your superannuation fund.
What is the eligibility criteria for the incentive?
The ATO website states you will be eligible to make a downsizer contribution 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 10 years or more prior to the sale
Your home is in Australia and is not a caravan, houseboat or other mobile homes
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 the sale, which is usually the date of settlement
You have not previously made a downsizer contribution to your super from the sale of another home.
How much can you add to your superannuation as part of the downsizer contribution?
If eligible, you can make a downsizer contribution up to a maximum of $300,000. The contribution amount can’t be greater than the total proceeds of the sale of your home.
A couple sells their home for $900,000. Each spouse can make a contribution of up to $300,000.
A couple sells their home for $500,000. The maximum contribution both can make cannot exceed $500,000 in total. This means they can choose to contribute half ($250,000) each, or split it – for example, $300,000 for one and $200,000 for the other.
Where do I get more information about the downsizer contributions scheme?
Visit the ATO website here
Note: The downsizing and super contributions proposal was announced as part of the 2017/2018 Federal Budget (May 2017 Budget). The proposal became law on 13 December 2017.