If you’re in your 60’s and your kids have all moved out, you may be considering downsizing to a smaller home. In this case the downsizer contribution may be a great option for you. It can be used as a way to free up some equity that has built up over the years and invest it. Placing this money into your super account can be an excellent way to boost your balance and benefit from investment returns, while preparing for a comfortable retirement.
What is a downsizer contribution?
From the 1st of July 2022, if you are 60 or older, you can contribute the proceeds of the sale of your home into your superannuation account. This amount can be up to $300,000 for each owner of the home. Therefore, joint owners who sell their home for $600,000, can contribute $300,000 each to their own super accounts.
Who is eligible for downsizer contributions?
Before making a downsizer super contribution to your super account, you must meet a list of criteria. This criteria includes:
- You must be 60 or older
- Your dependents must have already left home
- The property sold must be the family home or primary residence
- You must not have made a downsizer super contribution in the past
- You must have owned the home in question for at least 10 years
- The property must be at least partly exempt from capital gains tax
- The contribution must be made within 90 days of receiving the proceeds of the sale.
An investment property that you have not lived in is not eligible for downsizer super contribution. It cannot be a caravan, houseboat or another mobile home such as a van.
A downsizer super contribution can only be deposited into a complying fund. Unfortunately, defined benefit funds are not eligible to receive downsizer contribution payments.
What are the benefits of downsizer contribution?
The downsizer super contribution comes with a host of benefits for the account holders.
No contribution caps
The downsizer contribution is not a reportable super contribution and personal contribution caps do not apply to a downsizer super contribution payment. Usually, after-tax contributions are limited to $110,000 each financial year. However, the downsizer super contribution is not subject to these limits, meaning you will not have to worry about contribution caps.
The money that you contribute to your account as a downsizer super contribution will help build your investment returns. That means that on top of the additional amount in your account, you will be earning additional interest. And the interest you earn will likely be much more than the interest you would earn on that amount in a standard savings account.
A downsizer super contribution is an after-tax contribution, also known as non-concessional. Therefore, you will not have to pay any tax on the amount when depositing it. And as you are over the age of 60, this money is returned to you free of tax when you withdraw it.
Former investment properties are eligible
If you own more than one property, you can still contribute the proceeds of your property sale to your super, without having to purchase another property. The only condition is that the proceeds of the sale must come from a property that was at one time your primary residence.
Examples of a downsizer contribution
Oliver and Bethany are 62 and 60 respectively, and own their home together. They have lived there for 23 years. Now that their children have all left home and are living independently, Oliver and Bethany find their five bedroom house a little too big.
They decide to downsize, and sell their house on the 5th of July 2022. Their settlement date is the 19th of August 2022. They do not have to pay capital gains tax (CGT) because this home is their primary residence. They sell their home for $500,000.
Within 90 days of the settlement, Oliver contributes $300,000 to his superannuation and Bethany contributes $200,000. Both pay these amounts as downsizer super contributions. Oliver is at his cap, though Bethany could have contributed an additional $100,000 if their home had sold for a higher amount.
One owner under the age of 60
Laura is 63 and her partner Mike is 58. They live in a home that they purchased together, 20 years ago. The home was originally an investment property that they shared, but the home has been their primary for the past four years.
They sell the house for $750,000 and because the home is their primary residence, there is no requirement to pay capital gains tax (CGT). Laura deposits $300,000 of the proceeds into her superannuation account as a downsizer super contribution. Mike wants to contribute to his account also, but he cannot because he is 58 years old.
Mike may be able to contribute some of the proceeds of the sale as a member direct contribution. Though he should seek professional superannuation advice before doing so.
How do you make a downsizer contribution?
Once you have confirmed your downsizer super contribution eligibility, you’ll need to fill out the applicable form which is available on the ATO website. When the form is complete, you will need to send this to your superannuation fund with a contribution cheque. Some funds may accept electronic transfer, so it’s best to clarify this before sending your form.
The downsizer super contribution must be made within 90 days of receiving the money from the sale of your home. Most likely, that is the date of settlement. If you do not make the contribution within 90 days, you will not be eligible.
There’s a common misconception that to benefit from salary sacrificing into superannuation, you need to be a high income earner. However, that’s not exactly the case. As long as you ensure you are not overcommitting and retain adequate take-home pay, salary sacrifice can be an excellent way to boost your super balance.
Get superannuation advice, today
At Review My Super, our experts are ready to help you with your downsizer super contribution, as well as any other superannuation matters. Get in touch with us for super advice today.