Downsizing Rules
Background
From July 2018, the government has introduced the downsizing rules. Many Australians have not had a chance to accumulate during a long period of time and don’t have sufficient funds in super or have utilized the funds to live. In order to assist those older Australians in putting extra money into super, the government has introduced the downsizing rule, allowing home owners to potentially put up to $300,000 extra into this tax effective environment.
Australians aged 65 and over who meet certain requirements are able to make a non-concessional contributions (after tax) into super of up to $300,000 from the sales proceeds of the family home. The home needs to have been owned for at least 10 years.
The downsizing contributions are in addition to any other voluntary contributions made under existing non-concessional contribution cap. So, if you have made $100,000 non-concessional contributions for a financial year, you would still be able to put up to $300,000 in that same financial year. As you must be 65 and over, you would not be able to utilise the bring forward rule.
The downsizing contribution will count toward your transfer balance cap of $1.6 million.
The downsizing contribution can only be made on one property – you can’t access it again for another property. They are not tax deductible and will also be included in the assets to determine your eligibility for Centrelink entitlements.
This is a great opportunity to get extra money into super – it’s important that you consider you individual circumstances to determine the benefits.
Tips:
- If you’re 65 or over, ensure you make the contribution within the due time & that you are eligible
Traps:
Check if there is a benefit of putting the money into super. Depending on your financial situation, in some instances, you can still have assets outside of super and not pay tax. If you have reached the pension cap, then the money may sit in accumulation and you would end up paying 15% tax on earnings.
Eligibility Criteria:
- You must be 65 years and older
- The amount you are putting in comes from the proceeds of selling your home and the settlement or exchange is after the 1st of July 2018
- Your home was owned by you or your partner for 10 years or more prior to the sale. The dates are worked out as the period from settlement of Purchase to settlement of sale
- The home is not a caravan, boat home or mobile home and is in Australia
- You must provide your superfund with the downsizing contribution form either before or at the same time as the contribution is made
- The contribution is made within 90 days of the settlement