Getting ready to retire? Becoming an empty nester soon? If so, you may be considering downsizing and selling your home for a smaller one – or for something that better fits your lifestyle during retirement.
As it turns out, now could be the perfect time to sell your home and take advantage of the new downsizing measure, which will allow those over 65 the chance to use some or all of the money to contribute to a superannuation fund.
From 1 July 2018, individuals and couples age 65 or over will be able to use the proceeds from the sale of a home – up to $300,000 per person or $600,000 per couple – to contribute to their retirement super funds.
Some rules, restrictions and important considerations
Besides the age requirements noted above, there are some regulations that apply and some points to keep in mind with the new measure:
- You and/or your spouse must have owned the home for at least 10 years prior to the sale.
- The home must be in Australia.
- All or part of any gain from the sale must qualify, or must have qualified, for the Main Residence Capital Gains Tax (CGT) Exemption.
- The exchange of sale contracts must take place on or after 1 July 2018 – earlier sales do not qualify.
- You need to notify your super fund before making the contribution.
- You must make your Downsizer Contribution from the sale to your super fund within 90 days of the date of the home sale (although extensions may be granted in some cases).
- Remember, the contribution from the sale cannot be more than $300,000 per person.
- The amount that you can contribute is also limited to the sale price of the home. For example, if you sell the home for $500k then the combined amount that you can contribute is limited to $500k.
- The Downsizer Contribution can only be used one time per person – in other words, you can’t sell two homes and take advantage of the measure both times.
- You don’t have to buy another home after selling one and making your Downsizer Contribution. Also, you can purchase a more expensive home than the one you sold to make the super contribution.
- You need to be careful that it does not affect your Centrelink benefits. Currently, residential homes do not count towards the Assets Test. Once the money is in superannuation it will be counted as an asset and may have an impact on your Age Pension, Health Care Card or Seniors Health Care Card depending on your personal situation and level of income.
- There is no maximum age limit.
In addition, the contribution doesn’t count towards a non-concessional cap or towards a “total super balance” test. However, the increase in your balance may affect the contributions you can make in the future. The total amount, or cap, you can contribute to any super fund remains the same: $1.6 million.
The provisions within the downsizing measure can be complex and releasing capital from selling your home can reduce your pension entitlements or increase means-tested aged care or home fees. For these and many other reasons, it’s best to discuss your options and questions with a professional financial advisor prior to starting any home sale process.
Need to find a trusted financial advisor to speak with about the Downsizer Contribution? Speak to our joint venture partners, Accru Midsec.
Disclaimer: The information contained in this article is based on information believed to be accurate and reliable at the time of publication. To the extent permissible by law, neither we nor any of our related entities, employees, or directors gives any representation or warranty as to the reliability, accuracy or completeness of the information; or accepts any responsibility for any person acting, or refraining from acting, on the basis of information contained in this blog. This information is of a general nature only. It is not intended as personal advice and does not take into account the particular investment objectives, financial situation and needs of a particular investor. Before making an investment decision you should speak with your financial planner to assess whether the advice is appropriate to your particular investment objectives, financial situation and needs.