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Downsizing to upsize your super

WEALTH SOLUTIONS: Andrew Heaven.
WEALTH SOLUTIONS: Andrew Heaven.

ANDREW Heaven, an AMP financial planner at WealthPartners Financial Solutions, talks about putting downsizing proceeds into superannuation.

Question: My wife and I are looking to downsize the family home and move into a smaller property. We believe we can put some of the proceeds of the property sale into super. However, we are in our 70s and haven't worked for years. What is the process of investing these funds into super?

Answer: As part of the 2017-18 Budget, the Government announced the superannuation downsizer contribution for those looking to sell a family home in retirement and invest the proceeds into super.

From July 1, 2018, individuals aged 65 and over will be able to make personal, on-concessional contributions into their super of up to $300,000 from the sale of their home.

For those who qualify for the superannuation downsizer contribution, the existing super contribution rules for people aged 65 and older; work test for those aged 65-74 and no contributions for those aged 75 and over will not apply. Additionally restrictions on non-concessional contributions for people with balances above $1.6m will not apply under this new initiative.

Draft legislation was released on July 21 which provides additional details of the requirements to be eligible to make a superannuation downsizer contribution. 

Both members of a couple will be able to take advantage of the superannuation downsizer contribution cap. Meaning that a couple could contribute up to $600,000 ($300,000 each) to super. There is no obligation for you both to have been on title, just that one of you was on title.

The consultation draft legislation provides for the sale of any type of property, however caravans, houseboats or mobile homes are specifically excluded.

While there is a cap of $300,000 per person, the limit of the contribution is the value of the property sale.

So if you sold the family home for $450,000, the limit would be $450,000 for the couple, provided no more than $300,000 was contributed per person. If an individual was to sell a property for $160,000, then $160,000 would be the limit.

Individuals must have owned their property for a minimum of 10 years however they are not obliged to have lived in the property for the full 10 years.

There is no obligation to make a subsequent property purchase. You can move into retirement communities, aged care, smaller properties, homes not close to schools or away from major employments centres or into your adult children's homes.

Superannuation downsizer contributions would be required to be made to a super fund within 90 days of settlement of the property. Extensions to this deadline may be sought from the Australian Taxation Office.

You may make multiple contributions within the 90 days provided that in aggregate the contributions are within the caps and meet all other criteria. However, you are limited to one superannuation downsizer contribution from the sale of a property, even if you sold a subsequent qualifying property.

In order to take advantage of the superannuation downsizer contribution, the contract of sale must be entered into on or after July 1, 2018. Therefore exchanging contracts on the property prior to July 1, 2018 would void any entitlement to utilise the superannuation downsizer dontribution, so be careful.

The superannuation downsizer contribution is a non-concessional contribution therefore there are no tax deductions for making the contribution.

The consultation period for the draft legislation closed on Friday 4 August. Please note the draft legislation is not yet law and may be subject to change. 

As to whether using the superannuation downsizer contribution is of benefit to you will largely depend upon you personal circumstances including; your income needs, your taxable income, the scale of your current super investments and your estate planning needs.

Stay tuned for future updates and consider the above before making any financial decisions. 

Q&A with The Coach story first appeared on the WealthParners www.wealthpartners.net.au. They can followed on Facebook and Twitter. Any general advice in this story doesn't take account of your personal objectives, financial situation and needs.

Topics:  andrew heaven finance general-seniors-news retirement planning superannuation wealth partners


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