Are you aiming to increase your superannuation balance as retirement approaches?
The downsizer contribution rules are designed to assist older Australians in selling their current home and using the sale proceeds to contribute to their superannuation account.
Effective from 1 January 2023, the minimum eligibility age has been lowered to allow individuals aged 55 and over to make downsizer contributions. Previously, the minimum age was set at 65, but it has since been progressively reduced to age 55.
This new age threshold (55 years) is determined by your age at the time of making the contribution, and there is no upper age limit. Typically, once you reach the age of 75, superannuation regulations prevent you from making voluntary contributions. Thus, a downsizer contribution offers a unique chance to increase your super savings.
There is no requirement for a work test to make a downsizer contribution, and you do not need to have a history of paid employment. However, it is important to note that you cannot claim a tax deduction on a downsizer contribution.
Contribution Limits
According to the downsizer rules, you can contribute up to $300,000 (or $600,000 for couples) from the sale proceeds of your eligible family home. The contribution limit is capped at the lesser of $300,000 or the actual gross sale proceeds. This means contributions are not allowed if you gift your home to a family member and the sale proceeds amount to $0.
The presence of any debt or remaining mortgage on the property does not affect your ability to contribute to your super account.
Eligible Homes
While the downsizer rules are quite accommodating, it’s crucial to ensure that your home qualifies before selling.
The key criteria include:
- You must have owned the property for a continuous period of at least 10 years, measured from the date of original settlement when you purchased the property to the settlement date when you sell it.
- The sold property must have been your primary residence at the time of sale, or it must be partially exempt from capital gains tax (CGT) through the principal residence exemption.
- The home being sold must be located in Australia.
Certain types of property are ineligible under the downsizer rules, including investment properties where you haven’t lived, caravans, houseboats, and other mobile homes. Additionally, vacant blocks of land are not eligible.
If you decide to sell your home to make a downsizer contribution, you are not obligated to purchase another home with the sale proceeds. In other words, there is no requirement to downsize to a cheaper or smaller property after making your contribution, allowing for the possibility of buying a more expensive replacement home.
Caution
The costs associated with selling a family home can be considerable. If you opt to purchase another home, be aware that sales commissions, moving expenses, stamp duty, and land taxes can quickly add up. Therefore, carefully consider your decision to downsize, as selling a larger home to move to a smaller one might not always generate significant excess capital, especially in major cities. Make sure to calculate how much you will have available to contribute to your superannuation before proceeding with the sale.
For more information about superannuation, visit Connect Client.
