The superannuation downsizer scheme is finishing up its first year after coming into effect on 1 July 2018.
Under the scheme, eligible individuals that are 65 years and older may be able to make a contribution into their superannuation of up to $300,000 from the proceeds of selling their family home.
What is the downsizer scheme?
Downsizer contributions can provide a way to boost your super balance for those who may not have saved enough to fund their retirement. As they are tax-free, downsizer contributions can be a good opportunity to top up already existing savings. They are non-concessional contributions, meaning that they do not count towards your contributions caps and can still be made for those who have a super balance greater than $1.6 million. While there are a number of benefits to the scheme, it is necessary to keep in mind that the contributions are not tax-deductible.
No work test applies to be eligible for downsizer contributions. This test requires that taxpayers aged 65-74 who wish to make voluntary contributions must be employed for at least 40 hours within a 30-day period. By removing this requirement, older Australians who no longer work significant hours will still be able to add large sums to their super.
To be eligible to make a downsizer contribution to your super, you must meet a number of requirements. These include:
- You are over 65 (there is no maximum age limit).
- The amount that you are contributing is taken from the proceeds of selling your home, where the contract of sale was exchanged on or after 1 July 2018.
- Contributions are made within 90 days of receiving the proceeds of a sale.
- The sold property must have been owned for at least 10 years and must have been your main place of residence at some point in time.
- The property must be in Australia and excludes houseboats, caravans and mobile homes.
- The proceeds from the sale of the home are exempt or partially exempt from capital gains tax (CGT) under the main residence exemption.
- You have not previously made a super downsizer contribution from the sale of another home. However, if the home that was sold was only owned by one spouse, then the other spouse that did not have an ownership interest may also make a downsizer contribution if they meet all of the other eligibility requirements.
Further rules may apply to various situations, and contributions that do not meet the downsizer contribution eligibility requirements may incur penalties from the ATO.
For more information and advice on other implications to the super downsizer scheme that may affect you, contact the team at Abbotts by email (firstname.lastname@example.org) or phone ((08) 9321 2642).