As part of the 2017-18 Federal Budget, the government announced the introduction of the “downsizer contribution” allowing people to downsize the size of their home and contribute some of the proceeds to Superannuation.
So, what are the details and how does it work?
Under the announcement, the draft proposed “downsizer contribution” rule is to come into effect from 1 July 2018.
It will allow those 65 and older the ability to downsize from their main residence and tip up to $300,000 (per spouse/partner) into a Superannuation Fund.
The amount will be treated as a non-concessional contribution (tax-free component) and not subject to either the:
· age based work test or:
· existing non-concessional contribution limits.
What are some of the conditions?
Some of the relevant conditions to utilising the downsizer contribution are:
· Property must be your permanent dwelling in Australia
· You must have owned the property for a period of 10 years or longer
· The property must have been/or is your main residence
· Contribution must be made within 90 days after settlement
· Election must be made and given to the Superannuation Fund to treat the contribution as a “downsizer contribution”.
· “downsizer contribution” can only be used once.
How much can I contribute?
A maximum of $300,000 per person can be contributed, however it cannot be more than the proceeds of the sale of the property.
See following examples:
1. A couple sold their main residence and received $700,000 as the proceeds of sale. Under the downsizer rules, they can only contribute $300,000 each.
2. An individual sold their main residence and received $275,000 as the proceeds of sale. Under the downsizer rules, the individual can only contribute $275,000.
Do I have to “downsize”?
Based on the draft guidance, no, you don’t need to “downsize” from your main residence.
My wife is on the title of the property only. Can I make a “downsizer contribution”?
Yes, you can.
I have more than $1.6m in Superannuation in pension mode. Can I make the contribution?
Yes, you can. However, the amount is unable to be converted into a pension account.
Some tips to keep in mind:
· It is proposed the downsizer contribution is to apply from 1 July 2018. Please note the guidance is still a draft and is not yet legislated.
· Careful consideration must be given to the impact of a downsizer contribution on any Age Pension/Centrelink Benefits currently received. Means testing will/still apply.
Any further queries, please free feel to get in touch with us.
Written by Mitchell Markwick – Director Clime Super
If you would like to request a brief appointment with Mitchell following the upcoming End of Year Investor Briefings, click here.