The Federal Government is encouraging older Australians to downsize their home and enabling them to invest the proceeds in superannuation as part of its "housing affordability" theme in the 2017 Federal Budget.
Individuals aged 65 and older can contribute up to $300,000 to their personal superannuation fund using proceeds from the sale of their family property that has been owned for at least 10 years.Â
This contribution can be made in addition to any other voluntary contributions that a person may make under the existing contribution rules and concessional and non-concessional caps.
Note:
The donation must be given within 90 days of the home being sold i.e. from the settlement date.
A person must currently be over the age of 65 when making a contribution. The eligibility age for downsizer payments will be reduced to 60 from July 1, 2022.
Individuals can make as many downsizer contributions as they choose, subject to the $300,000 limit. The contributions, however, can only come from the proceeds of a single home sale. It is a one-time application that cannot be utilised to sell another primary residence in the future. As a result, this allows an individual to contribute to several superannuation providers as a result of this.
Note:
If the selling contract is less than $300,000, the individual can only contribute that amount of money to superannuation. Other funds cannot be used to bring the total contribution to $300,000.
To qualify for a downsizer contribution, an individual or their spouse must have 'disposed' of an 'ownership interest' in a 'dwelling' in Australia that they held right before the disposal. With respect to this, the term 'dwelling' is modified to exclude caravans, houseboats, and other mobile houses. Therefore, the term dwelling includes:
a unit of accommodation that is a building or is contained in a buildingÂ
a unit of accommodation consists wholly or mainly of residential accommodation
any land immediately under the unit of accommodation
There are age restrictive rules for voluntary contribution in super for people aged between 67 to 74 years.Â
If you have reached age 67 but are not yet aged 75, and you're profitably employed for at least 40 hours over 30 consecutive days in a financial year before your super fund can accept contributions into your super account from 1 July 2020.
A 40-hour work test is currently required for persons aged 67 to 74 years.Â
Moreover, after-tax personal contributions are not allowed for those with total super balances above $1.7 million.Â
Individuals in this age bracket can make salary sacrifices or personal (non-deductible) member contributions without having to meet the job requirement beginning July 1, 2022.
There is no necessity to pass the job test under the downsizer regulations, regardless of age.
Individuals over 65, regardless of their age or employment condition, can donate up to $300,000 to a home that has been owned for at least 10 years.Â
The downsizer cap allows a couple to contribute up to $600,000 for the same home. The only stipulation is that the contributor(s) must be over the age of 65 at the time of contribution.Â
The qualifying age for downsizer contributions will be reduced to 60 years from July 1, 2022. This provides people with more opportunities to save for retirement within the super environment for retirement.
Individuals who start their first retirement phase income stream from 1 July 2021 will have a personal transfer balance cap of $1.7 million even if there is no "Total Super Balance" cap to consider, as there is with non-concessional contributions. Individuals and couples must evaluate how funds will be contributed to super under this scheme.
If a member's personal Transfer Balance Cap has been reached, funds may have to be kept in an accumulation account. Funds in the accumulation phase are taxable, and the earnings and capital gains will be subject to a maximum of 15% tax.
If a working (not retired) individual over the age of 60 continues to make contributions under the downsizer rules after 1 July 2022, their contributions will be preserved within the superannuation environment. The conditions of release must be met for the individual to access the benefits in the form of lump-sum withdrawal and/or pension income stream.
Individuals aged 65 or more can automatically access the benefits in the form of lump-sum withdrawal and/or pension income stream. It doesn’t matter if the individual is working or has retired.Â
Individuals over 60 but under 65 should keep in mind these strategies on downsizer contributions when deciding whether or not to contribute funds from the sale of the family home to the super.
For social security purposes, the full value of a family residence is exempt from both the Income and Assets tests. However, any remaining sale proceeds (once the new home is purchased) will be assessed regardless of whether funds are donated to super or not.
Age pensioners should exercise caution before considering this strategy because selling the family home could result in the individual or couple losing some or all of their retirement benefits. If full benefits are lost, the pensioner concession card is also withdrawn.
