ATO: how to save money when you downsize your home
Australia’s downsizer super scheme has been updated: Here’s everything you need to know about how to make it benefit you.
If you feel like your property is too big to maintain now the kids have moved out, you might consider downsizing and free up some equity to help fund your retirement at the same time. The ATO's home downsizer superannuation scheme allows you to do just that, and enjoy a superannuation benefit.
Better still, the scheme has been made more generous. From January 1, 2023, a person aged 55 or over (previously 60 or over) can now make non-concessional contributions (also known as downsizer contributions) of up to $300,000 (or $600,000 per couple) from the proceeds of one sale of a main residence.
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These contributions are in addition to those currently permitted under existing rules and caps, and they are exempt from being treated as non-concessional contributions.
The rules apply to sales of a principal residence which has been owned for the past 10 years or more.
And both members of a couple are able to take advantage of this measure for the same home.
When does a super contribution qualify as a downsizer contribution?
All of the following conditions must be satisfied:
You must be 55 years old or over at the time of the contribution (60 years old or over prior to January 1, 2023)
The home must have been owned (by you or your spouse) for at least 10 years
The home must be in Australia; it can’t be a caravan, houseboat or other mobile home
The home sale proceeds must qualify for the Capital Gains Tax (CGT) main residence exemption (or would have been if the home has not been bought before CGT came into force in September 1985)
There is a time limit for the contribution to be made: within 90 days (or a longer period that the tax Commissioner allows) after ownership changes (typically within 90 days of settlement date)
No previous downsizer contribution can have been claimed from another home
You must provide each super fund with the downsizer contribution form before or at the time of the contribution
Any contributions not meeting the requirements of a downsizer contribution will be counted against the relevant contribution cap unless the superannuation provider refunds the amount.
Despite the measure being referred to as the downsizer contributions measure, there is no requirement for an individual to actually ‘downsize’ by purchasing another (smaller) dwelling to be used as their home (or main residence).
An individual selling their home can move into any living situation that is suitable for them, including a retirement community, aged care, a smaller property, renting or living with family, for example.
A downsizer contribution can be made in respect of one or both members of a couple, even if only one spouse held an ownership interest in the relevant dwelling (e.g. where the title was only in one spouse’s name).
If there is a change in the ownership of a dwelling between spouses or former spouses during the 10-year period that preceded the sale of the dwelling (e.g. as a result of the death of one spouse or as a result of divorce), the ownership interest held by the spouse who no longer holds an ownership interest (e.g. a deceased spouse or a former spouse) is still counted and included when applying the 10-year ownership test to the other spouse who makes the contribution on the disposal.
A word of warning: This is a one-off
This is a once-only opportunity. Therefore, Australians at the younger end of the eligibility spectrum (particularly people who now find themselves eligible in their late fifties because of the change in the law on January, 1 2023) need to consider if this is the right decision for them – because they can’t claim a second downsizer contribution later in life.
Younger people also need to bear in mind that they may not be able to access their superannuation until they meet a condition of release, which at a minimum won’t happen until they reach the age of 60 and could well be substantially later (possibly up to 65 if they don’t retire earlier).
That means that funds contributed through the downsizer scheme could be “locked away” in their superannuation fund for several years – something to think about if you actually need to access the funds.
There may also be Centrelink implications for someone choosing to make use of the downsizer contribution.
Superannuation assets held by those who have already reached their Age Pension age (67 years) are broadly assessed under the Centrelink asset and income tests, although a person’s principal home is exempt from the Centrelink asset and income tests.
Unfortunately, there are no special Centrelink means test exemptions applicable to amounts contributed to super under this ‘downsizing’ measure.
As such, individuals who sell their home (i.e. a non-assessable asset) and use some/all of the proceeds to make a superannuation contribution, may see a reduction in their social security benefits due to all or part of the asset becoming accessible.
Questions about salary sacrifice and superannuation? Read H&R Block's FAQs for answers via https://www.hrblock.com.au/faq/super/
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