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Downsizer Contribution to Super Rules

Downsizer Contribution to Super Rules

Part 1 - Rules

Your kids left home long time ago, so with time you wonder: “Why do I keep such a big house? Who wants to keep cleaning it? Sure, as hell I don’t?” 

Maybe it would be a good idea to sell it and buy something smaller, or in another area, or maybe move to warmer parts of Australia – if you are from Melbourne that is. Or maybe your dream is to live in the country, or near the beach or in the mountains (this is my plan). 

Or just simply, you realise that your home has gone up in value so much. Why would you keep the money stuck in the house? Why not extract some beautiful savings by selling it and start enjoying retirement in the way you’ve always dreamed of: 

  • travel overseas,
  • buy a caravan or a campervan and finally get to know your own backyard – Australia,
  • or spoil your grandkids a bit.  

And obviously save a big portion of money in your super fund, boost your super balance a bit, so you can enjoy financial freedom for the rest of your retirement.  

You can actually achieve all those goals utilising the Downsizer Contributions to Super.  

So today, I will give you a full explanation of this very beneficial type of superannuation strategy, that can help you improve your retirement savings and consequently your lifestyle.  

Downsizer contributions was originally introduced by the government in the 2017-18 Budget and officially available as a super contribution strategy since 1st July 2018.  

It is only available to you if you are over the age of 65. A great news is that there is no upper age limit for this type of contributions to be made.   

Usually when contributing to super you need to meet eligibility rules. If you don’t know those rules, read: Superannuation – all you need to know which is Part 1 an Part 2 Superannuation – Pay less tax“  

The downsizer contribution limit is $300,000 per eligible person and your contributions need to be from the proceeds of sale of your home. But this is an once time offer for you to use. Therefore, if used once, you cannot reapply for downsizer contribution ever again, even if you are meeting all the other requirements.  

Downsizer contributions are not counted as a non-concessional contribution, therefore are not counted towards your non-concessional contribution annual cap.  They will however count towards your transfer balance cap. There is no contribution tax to pay when funds enter super, but obviously you cannot claim tax deduction for those contributions either. 

You can make a downsizer contribution even if your total super balance is more than $1.7mil, but at this point, your super becomes more complex due to transfer caps limits, so you really need to speak with an experienced financial planner, specifically in the area of retirement planning.  

And a huge benefit is, that since you are over the age of 65, therefore you have already met conditions of release, you have an immediate access to that money. If you want a refresher on Conditions of Release and when you can start enjoying your super savings, watch this video: “When can I access my super, please?” 

If you move your super savings to a pension phase, you will start receiving an income that is tax free and also, all earnings within the fund are also tax free. That sounds perfect to me.  

Rules of Downsizer Contributions:

  1. You must be over the age or 65 at the time of making a downsizer contribution, and as I mentioned, there is no upper age limit.
  2. Your contribution has to be from the proceeds of sale of your family home, 
  3. You have owned your home for a period of 10 years or longer. 
  4. Your home needs to be in Australia – so if your home is in NZ, Thailand, India or any other country, this does not apply. It is for Australian home only. 
  5. It does not apply to a home such as a caravan, houseboat or any other form of a mobile home.
  6. When selling your home, it needs to be eligible for some form of exemption from Capital Gains Tax (CGT) under the “main residence” provision, which means that that property had to be your main place of residence, at least some time during its ownership. 
  7. You have to provide your super fund the Downsizer Contribution form either before or at the time of the contribution being made. To make it easier for you, this is the link to this form, so you can easily download it when you need it.
  8. The downsizer contribution needs to be made within 90 days of receiving the proceeds from the sale – which usually is the date of settlement. 
  9. As I mentioned before, this is only a one-time offer, so if you have done it before, don’t try to do it again, it won’t work and you could be penalised for deceiving and breaching the rules.  

Do you find this information helpful? Do you think you might want to consider this strategy as a way to boost your superannuation balance for your retirement?  

Next week I will continue with further explanation about the Downsizer Contribution, and I will: 

  • explain who will benefit from this strategy the most, 
  • list other very important factors you need to remember or consider before proceeding with Downsizer Contributions  
  • give you many examples how this works in practice in different life situations.  

So please connect with me again next week to find out more about the Downsizer Contributions. 

Retirement is a Journey NOT a Destination, so please be well prepared for the ride. 

By: Katherine Isbrandt CFP®
Money Strategist & Retirement Planner
Principal of About Retirement

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