During the recent election campaign the Liberal Party announced that as part of a raft of changes to target housing supply and affordability, the government would be increasing the incentives for more ‘empty nesters’ to downsize their home and boost their retirement savings by allowing Australians over the age of 55 to access the Downsizer contribution rules from 1 July 2022.
This is a further extension on the previously legislated reduction to 60 years or older from 1 July 2022. Prior to this it was 65 years old or older. There is no upper age limit.
This was supported by Anthony Albanese during the campaign as a practical suggestion to extend the existing downsizing program and so we expect this measure to be in place from 1 July 2022 onwards.
What are Downsizer contributions?
Currently Australians who are 65 years old or older can contribute all or part of the sale proceeds from the sale of their home (up to $300,000 each or $600,000 for a couple) into their super if they have owned the property for at least 10 years and meet all the criteria.
To be eligible to make a Downsizer contribution your (1) home needs to be owned by you or your partner for 10 years or more, (2) must be in Australia and not be a caravan, houseboat, or other mobile home, and (3) the proceeds from the sale must be either exempt or partially exempt from capital gains tax under the main residence exemption (or would be entitled if they are pre-CGT).
To be treated as a Downsizer contribution it must also be made within 90 days of receiving the sale proceeds and the correct form needs to be provided to your super fund ahead of time.
Why are Downsizer contributions so special?
Downsizer contributions don’t count towards your contribution caps when they are made and can still be made even if you have a total super balance of $1.7 million or more. Individuals with such a high balance in super usually aren’t eligible to contribute after-tax money which means this is a great measure to take advantage of to add more funds to your super when otherwise you couldn’t.
It’s also an opportunity for retirees who haven’t build up enough of a super balance for a comfortable retirement to access the equity from their home to top up their funds and start tax-free pensions to meet their lifestyle spending.
Remember there is also no requirement under the Downsizer contribution rules for you to be ‘downsizing’ to a smaller home, or even buying a new home at all.
Why wouldn’t I make Downsizer contributions?
You can only make Downsizer contributions to your super from the sale of one property. Once you use the rules you can’t use them again for another property and likewise if you have used them previously there is no change to being able to use them again.
This means it is worth thinking about whether you can contribute to super under your regular contribution caps and whether it is more effective saving the Downsizer contributions for a time when you no longer can.
You also need to consider the impact of your home sale on your eligibility to get Centrelink entitlements. Currently, proceeds from the sale of your home can continue to be exempt from the assets test for up to 12 months if you intend to use them to purchase a new principal home.
If you make a Downsizer contribution these funds will be taken into account for determining your eligibility for any Centrelink Age Pension or other entitlements which could reduce your cash flow and mean you need to draw on more of your capital.
How Astier can help
It is important to plan ahead when making any financial decisions, especially for something as significant as the sale of your home.
If you are thinking of selling your home or are looking for more information on whether you should take advantage of the Downsizer contribution rules, please get in contact with us and we’ll be happy to discuss your options.