Many senior Australians seek to downsize their home
Australians are able to downsize their homes and use sale proceeds towards expenses for in-home support or other priorities. In view of this preference, the government – as of 1 July, 2018 – allows Australians aged 65 years or older to downsize their home and make an after-tax contribution of up to $300,000 into their superannuation account; couples can contribute up to $600,000. They should have owned the home for a minimum period of ten years. There is no condition to actually purchase another home.
If this sounds interesting to you or your parent, here are four key points to consider:
- Tax implications inside super are always better than outside it, beating the marginal rate of 47%. Fund-level earnings and gains are taxed at 15%, and the combination of a lower tax rate and compounded earnings over a long time period can maximize your retirement nest egg. If you think your super balance can be better, a downsizing contribution is an excellent opportunity to leverage.
- A 90-day deadline for making the downsizing contribution applies. While Centrelink allows pensioners selling their principal residence a 12-month exemption under the Age Pension assets test, downsize contributions need to be made within 90 days of receiving gross proceeds arising from the home sale.
- Downsizing contributions are an allowable non-concessional contribution for accounts that have reached their balance cap. Under the existing rule, you cannot make a non-concessional contribution if your total superannuation balance is equal to or greater than $1.6 million. However, the rule doesn’t cover the downsizing contribution, so you have a chance to further boost your super balance.
- Downsizing may not always be a great super contribution solution. Selling a home brings in money but also costs quite a bit when you add up sales commissions and other charges, including the expenses related to buying a new home. Estimate cash in hand after downsizing to determine if it is worth making this type of super contribution.