Government change helps you downsize when you sell your family home

New government legislation which came in earlier this year has made it much more enticing to downsize by selling your family home because you are now able to contribute up to $300,000 from the proceeds of selling your home to your superannuation fund.

Prior to this new legislation, a range of restrictions and caps meant you couldn’t contribute such a large sum. With this change, many Australians will stand to benefit by selling their home and moving to a retirement village with far more equity at their disposal, via their topped-up super fund.

By selling the family home, you’ve freed up the equity which has built up in your home and placed the money both in your pocket – and in your super, ultimately placing you in a far better position to pay for a new residence in a retirement village.

There are some restrictions

But there are some restrictions on this new legislation. For example, the home sold must have been owned by the person selling it for the past ten or more years and have been the place of principal residence for that person. Both members of a couple can contribute to their super fund under this policy from the proceeds of the sale.

Making a payment to your super in this way is often referred to as a downsizer contribution and is not a non-concessional contribution and will not count towards your contributions caps. The downsizer contribution can still be made if a person has a total super balance greater than $1.6 million.

Does this affect your pension?

If you contribute the money from the sale of your home to your super in this way, it will count towards the Age Pension assets test. Any change to your superannuation balance as a result of this measure will count towards the Age Pension assets test.

Here are a few extra pointers about your downsizer contribution:

  • It won’t affect your total super balance until your total super balance is re-calculated to include all your contributions on 30 June 2019 at the end of the financial year.
  • The downsizer contribution will count towards your transfer balance cap, currently set at $1.6 million. This cap applies when you move your super savings into retirement phase.
  • You can only make downsizing contributions for the sale of one home. You can’t access it again for the sale of a second home.
  • Downsizer contributions are not tax deductible and will be taken into account for determining eligibility for the age pension.
  • If you sell your home and make a downsizer contribution, there’s no requirement for you to purchase another home.

Eligibility for the downsizer measure

To be eligible to make a downsizer contribution to super, you need to be able to answer yes to all of the following points:

  • You’re 65 years old or older at the time you make a downsizer contribution – there’s no maximum age limit.
  • The amount you’re contributing is from the proceeds of selling your home where the contract of sale was exchanged on or after 1 July 2018.
  • Your home was owned by you or your spouse for 10 years or more prior to the sale.
  • Your home is in Australia and is not a caravan, houseboat or other mobile home.
  • The proceeds (capital gain or loss) from the sale of the home are either exempt or partially exempt from capital gains tax (CGT) under the main residence exemption, or would be entitled to such an exemption if the home was a CGT rather than a pre-CGT (acquired before 20 September 1985) asset.
  • You have provided your super fund with the downsizer contribution form either before or at the time of making your downsizer contribution.
  • You make your downsizer contribution within 90 days of receiving the proceeds of sale, which is usually the date of settlement.
  • You haven’t previously made a downsizer contribution to your super from the sale of another home.

Will contributions made under this measure be exempt from the $1.6 million transfer balance cap?

No. Only people who have remaining transfer balance cap space will be able to convert their contributions into a pension phase account where earnings are tax-free.

Will the $1.6 million balance threshold for making non-concessional contributions also apply to the special downsizing cap?

No. Restrictions on non-concessional contributions for people with balances above $1.6 million will not apply to contributions made under this new special downsizing cap.

Making multiple contributions

You can make multiple downsizer contributions from the proceeds of a single sale. But the total of all your contributions must not exceed $300,000 or the total proceeds of the sale less any other downsizer contributions that have been made by your spouse.

There are penalties which may be applied if the government identifies any downsizer contributions made by someone who wasn’t eligible to make such a contribution.

Timing is critical

You must make your downsizer contribution within 90 days of receiving the proceeds of sale – usually at the date of settlement. If you need an extension if time, you can ask for an extension and this may be granted if there are factors outside of your control.

For more information on this special downsizing contribution to your superannuation, you can contact the ATO’s call centre on 13 28 61 from Monday to Friday – 8am to 6pm (AEDT) except for National Public Holidays. A limited extended service for enquiries will operate 10am – 2pm Saturday.

For some simple examples of how it all works, go to the ATO’s site here and scroll down to read the examples. You can also type in any of your questions to the ATO’s Virtual Assistant.