What you need to know about boosting super by downsizing
There are just 80 sleeps left until downsizing retirees can cash in on generous rules for contributions to superannuation.
Judging by your responses to two of YourLifeChoices’ recent surveys, few members are losing any sleep over whether they should sell the family home for something more modest.
And last December, a whopping 84.35 per cent of respondents to our Insights Survey 2018 said they were not considering downsizing.
Despite these responses, in the March survey, 38.6 per cent of respondents said they would downsize if they needed to supplement their retirement income. This income-stretching strategy was preferred over borrowing and other financial products.
Following the announcement of the downsizing/superannuation initiative by the Federal Government in the last May Budget, YourLifeChoices analysed the pros and cons, and concluded that there may be hidden risks for those who sell their homes.
As with any major money decision, before you commit to selling, first take into consideration the advice of your financial expert.
For those who are undecided, here is a guide to how the Government’s incentive works.
From 1 July this year, Australians aged 65 or older can contribute up to $300,000 (or $600,000 if a couple) of the proceeds of the sale of their home into their super fund. The contribution is considered non-concessional, which means it is not taxed.
While it does count towards the transfer balance cap of $1.6 million that individuals are allowed to have in a fund, if you already have this figure, you can still add up to $300,000 to your nest egg and not be taxed extra.
The extra funds are not tax deductible and they will be considered when assessing eligibility for the Age Pension.
If you do not have super and you would like to contribute your sale proceeds to a fund, you can join one.
It is important to stress that no pensioner will be forced to downsize and even if you do sell your home for a more modest one, it is not compulsory to put any extra money into your super fund.
Those who do choose to take up the downsizing incentive have to meet a number of eligibility rules. According to the Australian Taxation Office, you are eligible if you answer ‘yes’ to all these questions:
- you are 65 years old or older at the time you make a downsizer contribution (there is no maximum age limit)
- the amount you are contributing is from the proceeds of selling your home where the contract of sale was exchanged on or after 1 July 2018
- your home was owned by you or your spouse for 10 years or more prior to the sale
- your home is in Australia and is not a caravan, houseboat or other mobile home
- the proceeds (capital gain or loss) from the sale of the home are either exempt or partially exempt from capital gains tax under the main residence exemption
- you have provided your super fund with the downsizer contribution form either before or at the time of making your downsizer contribution
- you make your downsizer contribution within 90 days of receiving the proceeds of sale, which is usually the date of settlement
- you have not previously made a downsizer contribution to your super from the sale of another home.
If you are considering the downsizing option, you will have to contact your super fund to check that they accept downsizer contributions and complete a Downsizer Contribution Form. The form, which is yet to be made available, should be submitted with your contribution to the fund. If you are splitting your $300,000 among different funds, a form will need to be completed for each one.
What reasons do you have for wanting to downsize or not? Do you think the superannuation incentive is enough? Or are you concerned that boosting the balance of your super will affect how much Age Pension you receive?
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