If all the kids have all flown the coop and you’re left with an empty nest, it might be a good time to consider downsizing to pursue that ultimate retirement dream; fishing beside a river, surfing every morning, or getting up to that fresh country air. Your dream could be one step closer with thanks to the new measure which allows people to make additional super contributions from the proceeds from selling their home.

How does it work?

From 1 July 2018, people aged 65 or over will make able to make additional non-concessional contributions of up to $300,000 each from downsizing their home subject to certain conditions:

• The principle place of residence must have been held for a minimum of 10 years and located in Australia;
• The contribution must be an amount equal to all or part of the capital proceeds of sale of an interest in a qualifying dwelling in Australia;
• Any capital gain or loss from the disposal of the dwelling must have qualified (or would have qualified) for the main residence CGT exemption in whole or part;
• The contribution must be made within 90 days of disposing the dwelling (a longer time period may be allowed by the Commissioner);
• A choice must be made to treat the contribution as a downsizer contribution and the complying superannuation fund must be notified in the approved form of this choice either before or at the time the contribution is made; and
• The contributing individual has not previously made downsizer contributions or has had one made on their behalf, in relation to an earlier disposal.

Advantages

The advantage of downsizer contributions is that the contribution is neither a concessional nor a non-concessional contribution, so if you have already reached your concessional or non-concessional contributions caps for the year, you are still able to make a contribution through the downsizer contribution, provided you meet all the conditions.  If you and your spouse jointly own a home, and decide to downsize, you can both benefit from this measure.

For downsizing the same home, you and your spouse could potentially contribute a maximum of $600,000 into super.

The other advantage with this measure is that the restrictions on non-concessional contributions for people with total superannuation balances above $1.6m will not apply. Therefore, the total superannuation balance of the individual will also not affect their eligibility to make a downsizer contribution. However, any downsizer contributions will still be subject to the $1.6m pension transfer balance cap.

Does this measure seem too good to be true?

It is important to note that the family home is currently totally exempt from the Age Pension assets test.  However, changes in your superannuation balance as a result of using this measure may count towards the Age Pension Asset test.

There may also be other unintended consequences specific to your circumstances which should be discussed with your financial advisor.

Want the whole picture?

Making any decisions regarding your investments or super requires careful consideration and proper advice.  If you are considering taking advantage of this measure, we strongly recommend seeking advice from your financial advisor.  If you don’t have a financial advisor, let us know and we can get you in touch with one of our trusted colleagues.

Holistic advice is the key to a well-planned retirement and ensuring that you can realise your dreams.