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From 1 July 2018, if you are 65 years old or older and meet the eligibility requirements, you may be able to choose to make a downsizer contribution into your superannuation of up to $300,000 from the proceeds of selling your home. Here’s what you need to know.
Known as the ‘downsizing’ initiative, the Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 1) Act 2017 allows homeowners aged 65 and over to each contribute up to $300,000 extra into super from the proceeds of selling their home, in addition to their existing super caps and restrictions.
What kind of home would this apply to?
Not a caravan, houseboat, or mobile home (e.g. RV). But any other form of dwelling could potentially qualify you for a downsizer contribution.
When does the legislation start?
The incentive started on 1 July 2018 and applies to home sales where the contract of sale is entered into on or after 1 July 2018.
How is ‘downsizing’ assessed?
You don’t specifically have to buy a smaller house. The measure provides that you would be able to make a downsizer contribution after selling your home, but you are not actually required to make any subsequent purchase.
A couple sell their home for $800,000. Each spouse can make a contribution of up to $300,000.
A couple sell their home for $400,000. The maximum contribution both can make cannot exceed $400,000 in total. This means they can choose to contribute half ($200,000) each, or split it – for example, $300,000 for one and $100,000 for the other.
When does the contribution need to be made into superannuation?
The downsizer contribution must be made within 90 days after your home changes ownership (generally, within 90 days of the date of settlement).
Can I claim a tax deduction for the contribution?
No, you cannot claim a tax deduction for a downsizer contribution.
Are there any social security implications?
There may be. Retirees should seek financial advice before downsizing, because selling the family home – which is exempt from the Age Pension assets test – might trigger a reduction in pension payments for people who receive a full or part pension.
The government notes that any money contributed to super through the downsizing incentive will count towards the Age Pension assets test, and will not be exempt from the $1.6 million cap on savings that are allowed to be held in a tax-free super pension.
Why introduce this measure?
The Federal Government says many larger homes are occupied by older singles and couples because these people are discouraged from downsizing. It says its new measure should enable more effective use of the housing stock by freeing up larger homes for younger, growing families.1
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1 The Commonwealth of Australia, Budget 2017-18 Fact Sheet 1.5 – Reducing barriers to downsizing, accessed May 2017 at http://budget.gov.au/2017-18/content/glossies/factsheets/html/HA_15.htm
2 QInvest Limited (ABN 35 063 511 580 AFSL and Australian Credit Licence Number 238274) (QInvest) is a separate legal entity responsible for the financial services and credit services it provides. Advice fees may apply. Refer to the Financial Services Guide for more information.
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