Wouldn’t we all like to have more in our superannuation fund when it comes time to retire? Making extra contributions is one way to do that, however doing so is not always easy and it can see our extra savings locked away for a number of years until retirement. How then, are we able to maximise our super savings in order to achieve the lifestyle we desire once we stop working?
In December 2017, the Government passed legislation that permits individuals aged 65 or over to contribute the proceeds of the sale of the family home into super, up to $300,000 per individual.
This particular piece of legislation was proposed to ease pressure on housing affordability, and will come into effect when home sale contracts are exchanged on or after July 1 2018. There is no maximum age, no work test requirement, and applicants do not have to be permanently retired. In essence, the contribution cap is the maximum amount allowed to be put into super, and is calculated as the lesser of the proceeds of the sale, or $300,000 per person.
What’s needed to qualify?
There are a few boxes to tick to qualify for downsizer contributions, including the following:
- The home must be a permanent, fixed home (i.e. no houseboats, caravans etc.)
- Must have been owned for 10 years or more by:
- The contributor
- The contributor’s spouse
- A former spouse of the contributor
- (note: ownership can be joint, sole or tenants-in-common; and there is no requirement for a couple to have been together for 10 years)
- The home being sold must qualify, in part or in full, for main residence Capital Gains Tax (CGT) concession – or would qualify if the home was acquired before 20 September 1985 (a pre-CGT asset).
- The Australian Taxation Office (ATO) has a more comprehensive list available here.
To put Super Downsizer contributions into context, let’s look at a few examples.
- If a couple qualifies to make contributions and sells their home for $1,000,000 they are able to, if they wish, top up their super with $300,000 each.
- If that same couple sells their home for $400,000, they can contribute $200,000 each or another combination of $400,000 – but no more than $300,000 for either person.
An extremely attractive reason to make extra contributions to superannuation is, of course, the prospect of more money in retirement in a consessionally taxed environment. Generally, the amount you can contribute into super is capped, particularly when your super balance is above $1.4 million. The good news is that Super Downsizer Contributions do not count towards the usual contribution cap, which opens the door to people with significant balances who would otherwise not be able to add such large amounts.
There are, of course, restrictions to Super Downsizer Contributions, including the following:
- This is a once-in-a-lifetime event, in that only one home sale is eligible for downsizer contributions.
- Even if less than the maximum has been contributed, for example $100,000 rather than the maximum of $300,000; you cannot sell another qualified home later on and contribute the other $200,000.
- Downsizer contributions cannot be used to claim a tax deduction or to receive a government co-contribution.
- The proceeds from the sale of the home can be split into multiple contributions, but all must be made within 90 days of receipt.
- Individuals must elect to treat the contribution as a downsizer contribution at or before the amount is received at the super fund; and the ATO’s downsizer contribution form must be completed as a part of that process.
- Making this contribution may reduce any Centrelink age pension, as the money will be asset-tested.
Despite the number of criteria to make a Super Downsizer Contribution, the benefits in retirement can be significant. Contributing a substantial amount of money into super can translate into increased long-term tax efficient retirement income with the prospect of a good diversified investment return that is not necessarily possible with the family home.