You might remember that as part of the 2021-2022 Budget, the Australian Government announced that people over 55 years of age will soon be able to use their homes to boost their income in retirement.
The time has arrived! So, if you’re nearing retirement and thinking of selling your family home in the near future, let’s help you understand how the change in the superannuation downsizing limit can benefit you.
Downsizer contributions explained
In short, the downsizer contribution rules allow older Aussies to sell a home they have lived in (it doesn’t need to be your current home) and contribute some of the proceeds from selling that home into their super account to help them save for retirement.
From the beginning of 2023, eligible individuals aged 55 or older can choose to make a downsizer contribution into their superannuation of up to $300,000 per person, or $600,000 per couple, from the proceeds of selling their home.
The Australian Government reduced the eligibility age from 65 to 60 years in 2022 and reduced it further to 55 from 1 January 2023.
If you’re 55 or over and eligible to make a downsizer contribution, you can view this as a great opportunity to add money to your super account. Generally, once you turn 75, you are no longer able to make voluntary contributions although downsizer contributions are exempt from this age restriction.
Downsizer contribution limits
If the sale proceeds of your house are less than $300,000, you can only contribute up to the actual sale proceeds.
However, if you give the house to a family member rather than selling it, you won’t be able to make a contribution to your super.
If you still have debt or mortgage payments on the property, you can still make a contribution to your super account.
Benefits of downsizer contributions
A significant benefit is that you do not need to have a job or meet any work requirements to make a downsizer contribution. However, you cannot claim it as a tax deduction.
Another great thing about downsizer contributions is that they are not subject to the same contribution caps as other types of contributions.
This means that you can make these contributions in addition to other contributions without worrying about exceeding your annual cap amounts. This applies to both concessional and non-concessional contributions as well as the total super balance cap which currently sits at $1.7M.
How to check your eligibility for downsizer contributions
The ATO has a useful eligibility checker.
To be eligible, you need to be at least 55 years old and have owned the home for at least 10 years. The home sale must also be exempt or partially exempt from capital gains tax.
You can only make a downsizer contribution from the sale of one home and you cannot have made a downsizer contribution before.
When you make the contribution, it’s important to give your super fund the Downsizer contributions into super form.
Make a smart decision about downsizing superannuation
At First Financial, we support our clients to make the most informed decisions in their countdown to retirement.
Make the most of your retirement with a financial plan that will deliver choices – so you can stroll into the retirement you want with confidence and certainty.
If you need more clarity about downsizing superannuation and what the correct approach would be for you, contact a First Financial adviser today.
