A Downsizer Update

Back on the 1st of July 2018, a new opportunity arose that allowed older Australians to make contributions to superannuation without meeting the normal age limits and other conditions required for making contributions.

The introduction of “downsizer contributions”, which allows older Australians to contribute up to $300,000 of the sales proceeds of an eligible dwelling to superannuation, has been a real hit.

In the first year of the scheme, approximately $1bn of downsizer contributions were made. But this has increased significantly since then.

In her video address to the SMSF Association National Conference held in early 2022, the (then) Minister for Superannuation, Financial Services, and the Digital Economy, Senator Jane Hume stated that $9.4bn of downsizer contributions have been made.

The ability for older Australians to channel additional money into superannuation has been a winner.

The original purpose behind introducing downsizer contributions was to help address Australia’s housing crisis by encouraging older Australians to downsize their accommodation and move to smaller homes.

Like most things in life, there are conditions attached to making downsizer contributions, including:

• The home must be situated in Australia, not be a caravan, houseboat, or mobile home, and have been owned by a contributor or their spouse for more than 10 years,
• The home must, at least for a part of the time it was owned, have been the contributor’s principal place of residence. That is, the sale must qualify for at least a partial exemption from the capital gains tax,
• The contribution is made to superannuation within 90 days of receiving the sale proceeds,
• A written election notice is given to the superannuation fund, no later than when the contribution is made, informing the superannuation fund the contribution is a downsizer contribution,
• A downsizer contribution has not previously been made, and
• The contributor was aged 55 or over at the time of making their contribution.

The maximum downsizer contribution is $300,000 per person. Therefore, a couple could jointly contribute up to $600,000 of the sale proceeds of their home to superannuation.

When first introduced in July 2018, a person had to be aged 65 or older to be able to make a downsizer contribution.

From 1 July 2022, the minimum age was reduced to 60.

Legislation that sees the minimum age further reduced to 55 received Royal Assent on 12 December 2022, with the reduced age limit taking effect from 1 January 2023.

The opportunity to contribute up to $300,000 of the sale proceeds of a family home to superannuation is very attractive.

With a reduction in the qualifying age limit to 55, we will see more Australians having the opportunity to bolster their retirement savings.

However, even though the age limit for making downsizer contributions has been reduced, the other conditions remain in place.

If planning to sell your family home and contribute surplus proceeds to superannuation, it is important to understand the conditions that need to be met for a downsizer contribution to be eligible.

In addition, for those receiving an income support benefit from the Government, including an age pension, be mindful that selling your family home and spending less on replacement accommodation, whether making a downsizer contribution or not, may result in a reduction of your income support benefit.

When considering downsizing, and potentially making additional contributions to superannuation it is important to seek appropriate financial advice before proceeding.

The content within this blog has been sourced from our Licensee, Alliance Wealth’s blog ‘Realise Your Dream’.
https://blog.centrepointalliance.com.au/realiseyourdream/a-downsizer-update

General Advice Warning

This information has been provided as general advice. We have not considered your financial circumstances, needs, or objectives. You should consider the appropriateness of the advice. You should obtain and consider the relevant Product Disclosure Statement (PDS) and seek the assistance of an authorised financial adviser before making any decision regarding any products or strategies mentioned in this communication. Whilst all care has been taken in the preparation of this material, it is based on our understanding of current regulatory requirements and laws at the publication date. As these laws are subject to change you should talk to an authorised adviser for the most up-to-date information. No warranty is given in respect of the information provided and accordingly neither nor its related entities, employees, or representatives accepts responsibility for any loss suffered by any person arising from reliance on this information.

Liability limited by a scheme approved under Professional Standards Legislation.