Just prior to Christmas, the Federal Government delivered a gift to many older Australians who may be considering downsizing the family home. This was in the form of legislation passed by Parliament termed ‘Downsizing Super Contributions’.

Commencing on 1 July 2018, this new measure allows people over 65 to contribute sale proceeds from a home to their super. The contribution would be a non-concessional (after tax) contribution. It can be made up to any age, and is not counted under super contribution caps.

The main conditions are:

  • The sale contract must be entered into on or after 1 July 2018
  • The home must have been owned by you or your spouse for at least 10 years
  • The seller must be eligible for the full or partial capital gain main residence exemption
  • A maximum contribution of $300,000 per person applies ($600,000 for a couple)
  • The contribution (or combined contribution for a couple) cannot exceed the total sale proceeds
  • The contribution must be made within 90 days of receipt of the proceeds and a form must be submitted to the super fund prior to, or at the time of, the contribution
  • You can only take advantage of this in relation to one property sale.

So what’s the catch?

There really isn’t one. Interestingly, the rules do not require the seller to buy a new property, or indeed spend less on any new home purchased.

They also do not require the property to have been a main residence for 10 years. The requirement is for the property to be owned for 10 years, and to be the main residence for a period of that ownership. This potentially allows the proceeds of a rental property or holiday home to be contributed to super – provided the seller has legitimately lived in it as a main residence for a time.
Most retirees will benefit when the big family home is no longer suitable for them. It will allow people who buy a more suitable property and free up capital in the process, to use the tax concessions of super. This includes investing the capital tax free and drawing a regular tax free income.

Are you on the Age Pension?

One note of caution though. For those receiving the Age Pension, the family home is exempt from means testing, whereas super is fully assessed. Therefore, the potential impact on Centrelink benefits will need to be considered before implementing a downsizing strategy.

For more information and to see if this strategy is suitable for you, please call 1300 ELSTON or email info@elston.com.au and an adviser will be in touch.