By David Lloyd
In the May 2017 Federal Budget announcement, new legislation was introduced whereby those aged 65 and over will be able to contribute an additional $300,000 into their superannuation upon the sale of their primary residence. These payments are referred to as ‘downsizer’ contributions and aim to incentivise property sales for current or upcoming retirees whilst having the added benefit of reducing pressure on housing affordability for other Australians.
Eligible Contributions
Downsizer contributions become available from 1 July 2018 to eligible members and sale contracts must be exchanged from this date onward. It is important to note that it is not a requirement to subsequently purchase a new property. To meet the eligibility requirements, contributing members must be aged 65 or over (with no maximum age limit) and must have owned the house for a minimum of 10 years.
How Can You Contribute?
Once eligibility has been confirmed, it must be determined whether or not the superannuation fund accepts contributions of this form. This is mostly a question relating to self-managed superannuation funds, as many trust deeds will not allow these contributions. In this instance, the trust deed will need to be updated prior to proceeding.
Following the sale of a member’s (or members’) residence, each member can contribute up to a value of $300,000 (i.e. $600,000 for a couple), providing the combined contributions do not exceed the total value of the house. Put simply, a couple who have sold a $500,000 property will only be eligible to contribute $250,000 each – or some other combination less than or equal to the value of the property. This contribution must be made within 90 days of the sale unless an extension has been applied for and granted by the Australian Taxation Office (ATO).
The Benefits of Downsizer Contributions
A major benefit of this scheme is that contributions made via these means are not counted towards contribution caps or the total superannuation balance in the financial year they are made. However, these additional contributions will count towards a member’s total super balance cap in the following financial year.
Things to Watch Out For
As with any major asset sale, there are a number of factors to consider to determine if this fits your personal goals and financial structure. If you are currently entitled to Centrelink Age Pension payments, there may be ramifications associated with selling your primary residence. Centrelink eligibility is determined by an assets test, which the family home is generally excluded from. Moving a portion of these assets from a family home into superannuation subjects these contributions to the asset test once the member reaches pension age. Potentially, this will reduce or remove eligibility to receive age pension payments. Subsequently, this may adversely impact other government entitlements that one would have otherwise been eligible for, reducing the significance of making use of the scheme.
Next Steps
If you are considering taking advantage of the downsizer contributions scheme, it is recommended you seek professional advice to ensure the strategy is suited to your individual circumstances, needs and goals.
David Lloyd is Manager, SMSF of MGD Wealth and has developed a reputation for delivering high level SMSF advice and administration services to his clients. For more information, visit www.mgdwealth.com.au.
Disclaimer: This article contains general information only and is not intended to constitute financial product advice. Any information provided or conclusions made, whether express or implied, do not take into account the investment objectives, financial situation and particular needs of an investor. It should not be relied upon as a substitute for professional advice.
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