Upsizing superannuation by downsizing your family home
Just before Christmas, Parliament passed the legislation confirming the ability from 1 July 2018 for senior Australians to contribute to superannuation when downsizing their family home. The Downsizer Superannuation Contribution (DSC) measure, forms part of the Government’s plan to improve housing affordability while also offering people the opportunity to contribute up to $300,000 from the proceeds of the sale. This limit is per person meaning a couple could contribute up to $600,000.
The main eligibility requirements to make a DSC are:
- Must be 65 years of age or older at the time of contribution (there is no maximum age)
- The contract of sale on the home must be exchanged on or after 1 July 2018
- The home has been owned by the individual or their spouse for 10 years or more
- The home being sold must be exempt or partially exempt from capital gains tax (CGT) under the main residence exemption (or would still be entitled if pre-CGT)
- The contribution is made within 90 days of receiving the proceeds of the sale (generally the date of settlement).
A major benefit is that these contributions do not count towards any contribution caps and are not restricted by the total superannuation balance test. This means people with superannuation of greater than $1.6 million can still take advantage. There is also no requirement for the individual to be working (unlike other contributions if aged over 65). Furthermore, there is no actual requirement to purchase another home, adding flexibility if the intention after sale is to rent or go into a care facility.
Of course there are a few catches with these contributions. Firstly, it can only be done for one home and can’t be accessed again for any future sales. Also, the contribution amount can’t be greater than the total sale proceeds (ie. if a couple sell their home for $500,000 then this is the maximum they can contribute between them even though their combined limit is $600,000). Finally, these amounts will be taken into account by Centrelink when determining eligibility for an Age Pension so it is important to ensure there are no unintended impacts if utilising this option.
It remains to be seen whether this will have any impact on housing affordability but while this measure may not actively encourage people to sell their family home, it is potentially an opportunity to boost superannuation balances if the intention is there to sell anyway.
Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.