Downsizing your home and gaining tax free Super
Turning 65 is an important milestone in most people’s lives. Hopefully your children have left home by now, you’re retired or planning for retirement in the not too distant future and you’re possibly ready to enjoy some travel or time with the grandchildren!
65 is also an important milestone in the tax and superannuation world! Among other things, this “coming of age” also means that if you decide to downsize (sell) your home, you may be able to use the proceeds of the sale as a tax free contribution to your superannuation.
Interested to know more? We’ve put together the 10 most frequently asked questions about Downsizing Superannuation Contributions.
1. What is a downsizer contribution?
A downsizer contribution (DSC) is a superannuation contribution using the proceeds from the sale of the family home.
The benefit of a DSC is that it will not count towards your $25,000 concessional and $100,000 non-concessional contribution caps. Which means, you can make a large contribution to your Superannuation, tax free.
A contribution under the DSC scheme can only be made once and is limited based on whether you are single or in a couple.
2. Am I eligible?
You may be eligible for the DSC if you satisfy all of the below requirements:
|Requirements||(Y / N)|
|You are 65 years of age or older at the time of the contribution|
|You or your spouse held an ownership interest in the home for 10 consecutive years|
|Your home is in Australia and is not a caravan, houseboat or other mobile home|
|Your home is exempt or partially exempt from capital gains tax under the ‘Main residence exemption’|
|You have not previously made a downsizer contribution|
|You make your downsizer contribution within 90 days of receiving the sale proceeds|
|You provide your superannuation fund with the necessary documentation|
3. Do I have to be working?
No. The current work test for voluntary contributions into your super account if you are aged 65–74 does not apply to downsizer contributions.
4. Do I have to be retired?
No. You do not have to be retired to make the contribution.
5. Do I have to ‘downsize’ my home?
No. There is no requirement to buy a smaller or less expensive home. You may choose not to buy a replacement home.
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6. Can I make the contribution if the home was not in my name?
Yes. If the family home is owned in your spouse’s name, you may also make a DSC, or have one made on your behalf – provided you also meet the eligibility requirements.
7. Can I make the contribution if I have hit my total superannuation balance limit of $1.6 million?
Yes. DSC are exempt from the $1.6 million total superannuation balance limit.
8. Is there a time limit?
Yes. DSC must be made within 90 days of receiving the property sale proceeds.
In some circumstances, you may be able to request a period longer than 90 days to make your downsizer contribution.
9. Will the DSC impact my age pension?
Potentially. If this is a concern for you, please seek specific financial advice before selling your family home and exploring the opportunity further.
10. How do I do it?
After you have checked that you are eligible, you will need to:
- Obtain financial advice to ensure it suits your circumstances
- Check with your superannuation fund that they accept and are ready for your DSC
- Complete a ‘Downsizer Contribution into Super’ form and provide it to your superannuation fund
This information has been provided by our accountants, West Carr & Harvey Pty Ltd
General Advice Disclaimer: This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.
West Carr & Harvey Pty Ltd is a Corporate Authorised Representative (No.12137376) of Merit Wealth Pty Ltd AFSL 409361 | ABN 89 125 557 002