How property down-sizers can boost their super balance

If you find that the house you’re currently living in is just getting too big to maintain now that the kids have moved out, you might have considered downsizing and freeing up some of the equity to help fund your retirement. Under a new government scheme, you can now do just that and enjoy a superannuation benefit.

A person aged 65 or over can now make non-concessional contributions (“downsizer contributions”) of up to $300,000 from the proceeds of one sale of a main residence.

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The amendments apply to proceeds from contracts for the sale of a main residence entered into (exchanged) on or after 1 July 2018.

These contributions will be in addition to those currently permitted under existing rules and caps and they will be exempt from the existing age test, work test and the $1.6 million balance test for making non-concessional contributions.

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The measure will apply to sales of a principal residence owned for the past 10 years or more, and both members of a couple will be 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 65 years old or over at the time of the contribution

• The home sale contract must be after 30 June 2018.

• 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 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.

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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). Rather, an individual selling their home can move into any living situation that is suitable for them, including, for example, a retirement community, aged care, a smaller property, renting or living with family.

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.

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A word of warning

There may 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 are broadly assessed under the Centrelink asset and income tests. 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 assessable.

Mark Chapman is the Director of Tax Communications at H&R Block.