New super rules mean a couple over 65 may be able to contribute up to $600,000 to superannuation when downsizing their home.
As most were packing up for Christmas, the Government enacted legislation to encourage older Australians to downsize their home. The new rules operate without many of the restrictions that currently prevent this demographic from contributing to the tax effective super environment.
- There is no requirement to satisfy a ‘work test’ before making the contribution, and
- A superannuation balance of greater than $1.6 million does not prevent you from making a contribution.
This may present some unique planning opportunities.
General eligibility requirements
The individual must satisfy all of the following criteria to be eligible:
- The contract for sale is entered into on or after 1 July 2018
- The contribution is made within 90 days of receiving the proceeds of sale
- You are aged 65 or over at the time the contribution is made
- The contribution is funded with proceeds from the sale of a ‘qualifying dwelling’
- The dwelling was owned by the individual or their spouse for at least 10 years prior to disposal
- The disposal of the dwelling qualifies for the main residence capital gains tax exemption in whole or part
- An election is made to treat the contribution as a downsizer contribution and
- You have not previously made downsizer contributions.
There is no requirement to purchase another home.
Downsizer contribution amounts
The maximum downsizer contribution is $300,000 per individual homeowner, however, the total combined contribution amount cannot be greater than the total proceeds from the sale of the home.
Interaction with other superannuation rules
The downsizer contribution will not count towards contribution caps and is not restricted by the total superannuation balance cap. For example, a downsizer with a total super balance of greater than $1.6 million could be eligible to make a downsizer contribution.
Once in the fund, the contribution will count towards the individual’s total super balance, which may impact eligibility to make other contributions (primarily non-concessional contributions).
If an eligible individual wishes to make a combination of downsizer contributions and non-concessional contributions, the order and timing of these contributions should be considered allowing you to maximise the opportunity.
Downsizer contributions may help even up member balances, and maximise a couple's combined superannuation benefit that is eligible for tax free pension status.
Estate planning benefits
A contribution strategy should be considered even if you intend to use the proceeds for other purposes.
For example, it may be worth making a downsizer contribution, then withdrawing the funds for your intended use (e.g. replacement property). This may improve estate planning tax outcomes.
Age pension implications
Consideration should be given to the implications for those in receipt of an age pension.
We encourage you to contact Redwood if you or someone you know has any questions.
This advice is general in nature. We encourage you to review our disclaimer.