YourLifeChoices member Betty is having trouble deciphering the federal government’s downsizing incentive scheme and asked us for help. We consulted Mark Skelsey from downsizing.com.au for guidance.
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Q. Betty
Could someone please explain downsizing as it applies to the government’s downsizer strategy whereby people over 60 who ‘downsize’ can place $300,000 in their super. If I put a second home/unit on my big suburban block, am I downsizing? If I move to a similar-sized house on a smaller block, am I downsizing? How is downsizing defined?
Mark Skelsey says: The Australian government’s downsizer superannuation contribution scheme commenced in July 2018 and allows eligible individuals aged over 65 to be able to place up to $300,000 into their superannuation from the sale of their family home (up to $600,000 for couples).
The government has announced that it plans to reduce the scheme’s minimum age to 60 from July 2022.
Read more: Older Aussies rushing to cash in after Budget change
The scheme allows these contributions to be made, even though the individual or couple may not meet work tests that normally apply to superannuation contributions at this age.
Downsizer contributions are also not subject to usual annual contribution caps and the total superannuation balance limit ($1.7 million from July 2021).
Your questions go to an interesting quirk of the scheme.
Despite being called the downsizer superannuation contribution scheme, the scheme doesn’t actually define downsizing or even that the person selling the family home needs to buy another home at all (in other words, you could sell your home, put the money into super using the downsizer scheme and then live in the park or on the beach).
Read more: A downsizing dilemma
It just makes clear that, to utilise the scheme, you need to be selling your principal place of residence of at least 10 years (that is the family home) and that this principal place of residence can’t be a caravan, houseboat or other mobile home.
This would mean that, if you move from your family home and into a granny flat or second home you’ve built on your family home block, without any sales process, you would not be eligible for the scheme.
However, selling your home and moving to another similar-sized home on another block, would mean you are likely to be eligible to use the scheme, even though you may not be technically downsizing.
However, if you are moving to a similar-sized home on another block, it would appear unlikely that you would be releasing equity from the sale of your home and therefore wouldn’t have any money to place into super.
Read more: Why retirees need to learn to ‘eat the house’
Like everything though, it’s vital that you get independent and qualified legal and financial advice to ensure you go into any transaction with all the facts, rather than relying on the above general advice.
You can also find out more about the downsizer superannuation contribution scheme at www.downsizing.com.au
Do you understand the government’s downsizing incentives? Do you have a question for Mr Skelsey? Why not send it in to newsletters@yourlifechoices.com.au, or share your thoughts in the comments section below?
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