25 September 2023

Putting up with downsizing: While you might qualify, is it all roses?

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Barbara Booth* says the downsizer contribution can boost superannuation savings beyond contribution cap limits, but there are important issues that need to be considered.

What is the downsizer super contribution?

Introduced by the Federal government, this incentive encourages older Australians to sell their larger homes and move somewhere smaller and free-up housing stock in the process.

From 1 July 2018, it allows for a one-off payment of up to $300,000 into your super out of the proceeds of sale from your main residence.

This payment is not subject to any of the normal super contribution rules that would normally apply for a large lump sum.

So you’ll be able to boost your super regardless of whether you meet the work and contribution caps test, and the contribution restrictions if your total super balance is above $1.6 million.

Before taking advantage of this, you should consider any impact a downsizer contribution will have on your tax position, social security benefits and future aged care needs and entitlements.

How do I make a downsizer contribution?

To be eligible you need to be aged 65+ and can only make one contribution in your lifetime.

Contracts must be exchanged on or after 1 July 2018 and you must make the contribution within 90 days of settlement.

The property sold must have been owned by you and/or your current or former spouse or partner for the 10 years prior to the date of sale.

The proceeds of sale from the home must be either full or partially exempt from capital gains tax (CGT) residence exemption, 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.

At the time that you make the downsizer payment – or beforehand – you must notify the trustee of your super fund in the approved form.

If you do this after the payment is made, your fund may not treat it as a downsizer contribution.

So, it’s very important that you communicate this to your fund at the right time and in the right way.

What should I consider before making a downsizer contribution?

When it comes to eligibility for the age pension and other Centrelink benefits, your assets and/or your income will be taken into consideration.

Your principal home is exempt from the assets test.

If you were to sell it and transfer some, or all, of the value to your super fund, it will be included in the assets test for your Centrelink payments and could impact your eligibility as a result.

In the 2018/19 financial year, $300,000 is the maximum you can contribute as an individual.

If you’re a couple and pocketing $400,000 from the sale of your home, that means you’ll each have $200,000 to pay into your super as a downsizer contribution. Or you can make it an unequal split, with one of you contributing more (up to $300,000) and the other less if that makes sense for your situation and super balances.

Even when there are compelling financial reasons to sell your home and take advantage of the downsizer contribution, it’s important to consider how you would like to be cared for if you become less independent as you age.

You might prefer to stay living where you are now and have home care support. Or you may be better off moving now so you can put the extra funds towards your retirement income.

As always, the right strategy for you depends on your personal circumstances and retirement goals.

Before assessing whether downsizing is right for you – financially and otherwise – it’s a good idea to get professional advice.

Take the next step

With the right help, planning for your retirement is easier than you think. For more expert tips, visit the StatePlus website at this PS News link.

* Barbara Booth is a registered financial adviser with StatePlus and can be contacted at [email protected].

StatePlus, formerly known as State Super Financial Services, is one of Australia’s leading providers of financial planning. Since 1990, our retirement experts have provided life changing financial advice to public sector employees and their families. With a StatePlus planner by your side, you can feel confident about reaching your financial goals to live the retirement you really want.

This article was published in November 2018. The information in this article is current at the time of writing the article. This is general information only and does not take into account your personal objectives, financial situation or needs. It is important to seek financial and taxation advice that takes into account your personal objectives, financial situation and needs before making any decisions based on this information.

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