From 1 July 2018, retirees will be eligible to make superannuation ‘downsizer’ contributions. This new super measure became law on 13 December 2017 and will allow an individual aged 65 and over to use the proceeds in relation to one sale of their main residence to make ‘downsizer’ contributions of up to $300,000 (or $600,000 as a couple) into superannuation.

This is an exciting proposition for retirees as there are contribution restrictions and caps that prevent some older Australians from investing the proceeds of selling their home, into superannuation. Downsizer contributions are not subject to the restrictions listed below that typically apply to non-concessional (after tax) contributions and most importantly, nor do they count toward traditional contribution rules:

Work Test A downsizer contribution can be made regardless of whether the individual is working or not.
Upper age limit The under age 75 restriction does not apply to a downsizer contribution. There’s no upper age limit when making a downsizer contribution.
Total super balance A downsizer contribution is not subject to the total super balance test which is relevant when determining an individual’s non-concessional contribution cap. However, once a downsizer contribution is made, it will increase an individual’s total super balance.
NCC caps A downsizer contribution is excluded from being a non-concessional contribution and does not count towards an individual’s NCC cap.

For a contribution to be considered as a downsizer contribution, the following conditions will need to be met:

Age
The individual must be aged 65 or older at the time the contribution is made.

Qualifying property

  • The contract for sale (not the settlement date) must be entered into on or after 1 July 2018.
  • The property that is sold must be located in Australia and cannot be a houseboat, caravan or other mobile home.
  • The property must have been owned by the individual, or their spouse for 10 or more years just prior to disposal. This means the property does not need to be owned by both members of a couple.
  • The property must qualify for the main residence capital gains tax (CGT) exemption in whole or part. This means the property does not need to be a current home. It could be an individual’s former home which has been subsequently used as an investment property or left vacant. As long as a property is eligible for at least a partial main residence CGT exemption, the property is able to satisfy this condition.
  • The property can be a pre-CGT asset (purchased before 20 September 1985) if this pre-CGT property could have qualified for a whole or partial main residence CGT exemption had the property been a CGT asset (i.e. if purchased after 19 September 1985).
  • There is no requirement to actually downsize or purchase another home.

Downsizer contribution cap
The total amount of downsizer contributions that can be made is the lesser of:

  • $300,000 per individual, and
  • the total proceeds received by an individual or their spouse from the sale of the property.
    For example, if a qualifying property is sold for $200,000, then this is the maximum downsizer contribution permitted by an individual or couple.

On the other hand, if this property is sold for $700,000, $300,000 will be the downsizer contribution cap for an individual. The spouse of the individual can also make a $300,000 downsizer contribution even if the spouse does not own the property.

90 days’ timeframe and approved form

  • The contribution must be made within 90 days of the change in ownership (i.e. settlement); and
  • A choice must be made by the individual to treat a contribution as a downsizer contribution. This choice must be made in the approved form and given to the super fund before or at the time the contribution is made. It is expected that this form will be similar to the ATO’s Contributions for personal injury election form and the Capital gains tax cap election form.

Deductibility
A downsizer contribution cannot be claimed as a tax deduction.

Under the downsizer contribution rules, there is no requirement to actually downsize or purchase another home. As there are a variety of financial planning opportunities that exist as a result of these new measures, it is recommended that you liaise with your Stonehouse Adviser to take advantage of this new initiative and ensure your personal financial circumstances meet all of the relevant eligibility requirements.

References

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