Background of the Downsizer Contribution
As an Australian the largest investment you’ll likely make is the purchase of a property to live in.
It can be a great investment for the lifestyle and security it can provide, but over time it is not unusual for retirees or even those approaching retirement to have changing needs from their home. For one thing, if you have children and they are no longer living with you, you may have a home that is bigger than you need now, making the maintenance and housekeeping associated with living in your large property potentially a burden leading to higher levels of stress and potentially even an overall lower quality of life. The house may have served you perfectly well with a family, but now as empty nesters, you might be looking for different infrastructure and conveniences that you will need to move for. The other reason you may be considering a downsize could also be to release some equity, that you can invest in your retirement income needs.
If you resonate with this situation there’s an option available and that is to downsize, which was made easier as from the 1st July 2018 as those who are over the age of 65 and meet the eligibility requirements may be able to make what is known as a Downsizer Contribution to Superannuation from the proceeds of selling your home.
What is a Downsizer Contribution?
From the 1st July 2018 if you are above the age of 65 and meet certain eligibility requirements, you will be able to make a once off contribution to Super of up to $300,000 from the proceeds of selling your primary residence, regardless if you don’t meet the standard eligibility criteria to contribute to super.
The beauty of this contribution is that its not considered a non-concessional contribution and therefore does not count towards your contribution caps and can still be made regardless if your total superannuation balance (TSB) is above $1,600,000.
Who is eligible to make a Downsizer Contribution?
As we’ve said, to be eligible to make a Downsizer Contribution you must meet a certain criteria, this criteria is as follows:
- You must be 65 years old or older at the time you make the Downsizer Contribution.
- The amount you contribute is from the proceeds of selling your primary residence where the contract of sale exchanged on or after 1st July 2018.
- Your home was owned by either yourself or your spouse for at least 10 years or more prior to the sale.
- You make your Downsizer Contribution within 90 days of receiving the proceeds of sale.
- You have not previously made a Downsizer Contribution to your super from the sale of another home.
Assuming you’ve met all of the above you are able to make a once off Downsizer Contribution up to $300,000 to Super, also if the property is jointly owned, which is typically the case when it comes to couples, you are able to contribute $300,000 each, leading to a max contribution under Downsizer Contribution rules of $600,000.
Who would use the Downsizer Contribution?
Obviously If you intend to downsize during retirement you are best poised to take advantage of the Downsizer Contribution rules. Doing this will enable you to transition funds out of your primary residence, which is considered an illiquid asset and invest surplus proceeds within the tax effective environment of Superannuation, these funds can then be drawn on to meet the needs of your retirement lifestyle.
We at Yield find that many retirees are asset rich but cash poor, and this is primarily due to how much of their investable wealth is tied up in their primary residence. Knowing this, we often implement a Downsizer Contribution strategy to enable clients to lead the lifestyle they want.
If anything we’ve discussed here interests you and want to know more about how implementing a Downsizer Contribution strategy can assist in meeting your retirement goals, please contact the specialist team at yield here.
Important Note
Any information provided here is general advice only and does not consider your objectives, financial situation or needs. This information should not be taken as comprehensive and does not constitute legal or financial advice. You should seek legal, financial or other professional advice before relying on any content. Yield Financial Planning is not responsible to you or anyone else for any loss suffered in connection with the use of this information. Information is only current at the date initially published.
