Downsize Your Home to Make Superannuation Contributions

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:

  1. 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.
  2. 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.
  3. 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.
  4. 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.

Recent stories

How To Build An Emergency Fund Fast

In an ever-unpredictable world, financial preparedness is more crucial than ever. Emergencies – be they medical crises, unexpected home repairs,…

Read more

Essential Strategies for Achieving Investment Success

Understanding and achieving investment success is a highly personal journey, as the definition of success varies from one individual to…

Read more

Home Equity: Unlocking the Power

Home equity is more than just a financial term; it’s a powerful resource that, when utilised wisely, can support your…

Read more

What To Do With An Inheritance

Receiving an inheritance can be a significant moment in anyone’s life, often accompanied by a mix of emotions due to…

Read more

UGC Monthly Market Update | March 2024

Welcome to the UGC’s Monthly Market Update for March 2024. Join UGC’s Co-Portfolio Manager / Senior Investment Analyst, Huw Davies,…

Read more