Downsizing? Here’s What You Need To Know About Contributions.
Downsizer contributions are a valuable option for older Australians looking to boost their superannuation savings.
Introduced as part of the Australian Government’s efforts to address housing affordability and provide greater flexibility in retirement planning, downsizer contributions allow eligible individuals to contribute the proceeds from selling their home into their superannuation fund.
Downsizer contributions allow Australians aged 55 and over to contribute up to $300,000 (or $600,000 per couple) from the sale of their home into their superannuation fund.
These contributions do not count towards the concessional or non-concessional contribution caps, providing a unique opportunity to increase super savings without breaching these limits.
Eligibility Criteria
To make a downsizer contribution, individuals must meet the following criteria:
- Age Requirement: You must be 55 years old or older at the time of making the contribution.
- Residential Property: The property sold must be your main residence, and it must have been owned by you or your spouse for at least 10 years prior to the sale.
- Capital Gains Tax Exemption: The property must qualify for a full or partial main residence exemption for capital gains tax purposes.
- Timing: The contribution must be made within 90 days of receiving the sale proceeds, which is generally the settlement date.
- Contribution Limits: The maximum contribution is $300,000 per person, and both members of a couple can make individual contributions, potentially totaling $600,000.
- Existing Contributions: You cannot have previously made a downsizer contribution from the sale of another home.
Benefits of Downsizer Contributions
- Boost Superannuation Savings: Downsizer contributions provide a significant opportunity to increase your superannuation balance, enhancing financial security in retirement.
- No Contribution Caps: These contributions are exempt from the usual superannuation contribution caps, allowing larger deposits without penalties.
- Flexible Use: The proceeds can be used for any purpose within the superannuation fund, including investment in various assets, potentially leading to higher returns.
- Estate Planning: Downsizer contributions can be a strategic tool in estate planning, enabling more funds to be passed on to beneficiaries.
Steps to Make a Downsizer Contribution
- Sell Your Home: Ensure the property meets the eligibility criteria and proceed with the sale.
- Complete the Form: Fill out the “Downsizer Contribution into Superannuation” form provided by the Australian Taxation Office (ATO).
- Lodge the Contribution: You must submit the completed form to your superannuation fund either before or at the time of making the contribution.
- Make the Contribution: Transfer the sale proceeds (up to the allowed limit) into your superannuation fund within 90 days of receiving the sale proceeds.
Considerations and Advice
- Seek Financial Advice: Given the complexity and potential impact on your retirement planning, it is highly recommended that you consult with a financial advisor.
- Impact on Age Pension: Downsizer contributions can affect your eligibility for the Age Pension, as the funds will be counted under the assets and income tests.
- Superannuation Rules: Ensure you understand the superannuation rules and how they apply to downsizer contributions, including the preservation age and conditions of release.
- Plan Ahead: Consider the timing of your contribution and how it fits into your overall retirement strategy.
Downsizer contributions offer older Australians a significant opportunity to bolster their superannuation savings by leveraging the proceeds from selling their homes.
By understanding the eligibility criteria, benefits, and steps involved, you can make informed decisions to enhance your financial security in retirement.
As always, seeking professional financial advice is crucial to maximise the benefits and navigate the complexities of superannuation contributions.
