Did you know you could downsize your home and use the proceeds of the sale to upsize your superannuation savings with the Downsizer Contributions Scheme?
The Downsizer Contributions Scheme is now available to eligible people over 60 years of age. In this article we outline THREE reasons why downsizing could be a good option for you.
What are downsizer contributions?
The government incentive assists homeowners to boost superannuation savings by up to $300,000 ($600,000 for couples) using the proceeds from the sale of your home. It’s an opportunity to build your super balance without the usual restrictions associated with super contribution caps.
Further, there are no restrictions about repurchasing whether it’ a smaller house, and in fact you don’t even need to re-enter the property market at all to benefit from this scheme.
From 1 July 2022, the scheme expands to include people over the age of 60 (previously 65).
Three reasons why downsizing is such a good option
Superannuation is a tax-effective means for building wealth and providing a tax-free income stream in retirement. There are strict annual contribution caps that limit how much money you can place in your super account. However, on the sale of your home, the downsizer contribution rule makes it possible to contribute a lump sum of money to your super. Benefits include:
#1: You can contribute a $300,000 lump sum to super ($600,000 for couples)
Each spouse can contribute up to $300,000 to their own superannuation fund using the proceeds from the sale of your house.
The total contribution must not be greater than the total proceeds from the sale of your house. If your home sells for $500,000, you are only able to contribute $500,000 as a couple (split between your funds however you choose. $300,000 is the most that can be contributed to a single fund.)
#2: Downsizer contributions are outside other super rules
Downsizer contributions:
Do not count towards your non-concessional contribution cap
Are not restricted by an upper age limit. Other personal contributions to super can only be made if you are younger than 75 years of age
Do not count towards your $1.7 million transfer balance cap
Are an after-tax contribution, so no tax is paid on the way in, and will be returned tax-free when you withdraw the funds as part of your tax-free income stream.
#3: You don’t need to downsize or even re-enter the property market
There is no requirement to downsize your property, in fact you don’t even need to re-enter the property market when taking advantage of downsizer contributions.
The rules
You must be a minimum of 60 years of age to qualify for the scheme.
The property sale must relate to your property which is your primary residence, owned for ten years or more. The property must be exempt or partially exempt from Capital Gains Tax.
The scheme cannot be used for investment properties, caravans, houseboats or mobile homes.
Contributions cannot exceed sale proceeds.
The downsizer contribution must be made within 90 days of receiving the proceeds of sale, which is usually at the date of settlement, using a Downsizer Contribution Form.
You can only access the downsizing scheme once.
Proceeds over and above downsizer contribution will be assessed in the assets test for the aged pension (main residence is not included in assets test) which may impact your ability to receive aged pension.
Case study: Downsizing in action
Joan and John were no longer working and they were not eligible to make before-tax or after-tax contributions to boost their super. Find out how the downsizer contributions helped them.
Other opportunities to boost your super
If you are close to retirement and looking to boost your super, there are other changes to super that may also assist you to make the most of your super. Recent changes to age restrictions are now in place for salary sacrifice contributions, non-concessional contributions and the bring-forward rule.
Let us help you make the most of your super. Contact us on 07 3720 1299 or email admin@wealthfundamentals.com.u to discuss planning to achieve the retirement of your choice.
Lane Moses Pty Ltd ABN 56 092 186 117 trading as Wealth Fundamentals and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306.
The information (including taxation) contained within this document does not consider your personal circumstances and is of a general nature only - unless otherwise stated. Wealth Fundamentals strongly suggests that you should not act on it without first obtaining professional advice specific to your circumstances. This information is based on our understanding of legislation at the time of writing. Such legislation may be subject to change. This publication cannot be reproduced in any form without the express written consent of the author.