But from 1st July 2018, new laws are being introduced to allow people to downsize and sell their family home and pay part of the proceeds into their super fund. The new law is designed to reduce pressure on housing affordability by encouraging older Australians to vacate larger homes for smaller easier to maintain homes.
For some Australians, selling the family home can be a great way to release built-up equity to pay for the costs of retirement or in-home support that will allow them to stay in a smaller more easily managed home longer.
So how does it work?
- Your downsizer contribution will not count towards your super contributions caps or be affected by the total superannuation balance test in the year you make it.
- However, it will count towards your total super balance and transfer balance cap, currently set at $1.6 million. This cap applies when you move your super savings out of investment phase into the retirement phase.
- You can only make downsizing contributions from the sale of one home (and you can't access it again for the sale of a second home).
- Downsizer contributions are not tax deductible so any increase in your wealth will be taken into account for assessing eligibility for the age pension.
- If you sell your home, are eligible and choose to make a downsizer contribution, there is no requirement for you to purchase another home.
What's the eligibility for the downsizer contribution?
You will 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 over at the time you make a downsizer contribution (there is no maximum age limit).
- The amount you are contributing is only 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 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 given your super fund your completed downsizer contribution form either before or at the time of making your downsizer contribution to the fund.
- 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.
Does this work for couples with different super funds?
Yes. Couples will be able to contribute up to $300,000 each, giving a total contribution into a super fund per couple of up to $600,000.
Multiple contributions can be made from the proceeds of a single sale, and contributions can be made to different superannuation funds too but the total contribution amount per person cannot be greater than $300,000 or the total proceeds of the sale of the home, less any DSC made by the spouse.
Like all large increases in your wealth, make sure you speak with your financial adviser first to see how it will affect your particular situation before making any decisions.
Contact us for a chat or for more information, visit the ATO’s website.