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Retirement Planning, Superannuation

How Can You Add the Downsizer Contribution to Your Superannuation?

November 30, 2021

The downsizer contribution may help you free up money that has been tied up in your house and add it instead, to your super fund.

This can be a great way for Aussie retirees to boost their retirement income and allow them to move into a house more suited to their needs and wants. 

The super downsizer contribution is currently only accessible to those over the age of 65. But it is intended to be expanded to those over the age of 60 starting on 1st July 2022. 

How Does The Downsizer Contribution Work?

If you are 65 years or older and have owned your permanent house for 10 years or more, you may be entitled to make a downsizer contribution of up to $300,000 to your super fund.

Contributions for downsizing are exempt from regular superannuation contribution caps; this means it does not count towards any of the contribution limitations you’ve made previously – even if your total super savings exceed $1.7 million. 

Plus, both you and your partner can make the downsizer contribution separately. This gives you the opportunity to contribute $300,000 each to your super funds. 

 

Are you Eligible for the Downsizer Contribution?

In addition to meeting the age requirement of 65 years and above, there are some additional crucial conditions to meet.

  1. You must be selling an Australian property that you’ve held for at least ten years.
  2. This property must qualify as your “main residence” for you to be free, or at least partially free from capital gains tax (CGT) when you sell it.
  3. If you acquired the property before 20 September 1985, so that CGT does not apply, it must have been your principal place of residence at some point during ownership.
  4. You make your downsizer contribution within 90 days of receiving the proceeds of the sale (usually considered the date of settlement)

 

4 Advantages of Making a Downsizer Contribution

1. It Can Be Tax-Effective

The downsizer payment is a post-tax contribution, which means that no tax needs to be paid when you add it to your super fund. Plus, because you already have to be over 65 years old, it is returned tax-free when you withdraw the funds in the future.

2. There Are No Work Test Requirements

There is no obligation to pass a work test or qualify for a work test exemption to make a downsizer contribution, making it perfect for retirees who are no longer working. 

3. There Are No Contribution Limitations

It makes no difference how much money you have already contributed to your super fund (both concessional and non-concessional). 

Downsizer contributions are also exempt from the total super savings test, which requires that the total super savings be $1.7 million or less to make after-tax contributions.

4. You Are Not Required to Purchase a New House in Replacement

Your proceeds from the sale are not required to be spent towards acquiring another house. You also do not need to relocate into a smaller or less expensive space. If the transaction includes selling a prior primary home that is currently being used as an investment property, there may be no need to relocate at all. 

You can choose to use the extra funds however you please in retirement.

 

What Impact Does the Downsizer Contribution Have on Age Pension?

While your main residence isn’t taken into account when the government assesses your eligibility for the age pension, your downsizing contribution can be. 

If you sell your principal residence and contribute money into your super fund as part of the downsizer scheme, it is considered an ‘asset’ and may lower your age pension benefits.

However, if you choose to purchase a smaller home, only the amount leftover will be considered an asset. For example, if you sell your home for $1 million dollars and buy another for $750,000 – only the leftover $250k will be considered an ‘asset’ and will be assessed under both the income and assets tests. 

The downsizer contribution could be a fantastic opportunity for you as part of your retirement plan.

 

Get in touch with Cambio Group if you are seeking a financial advisor in Gold Coast to help you better understand the downsizer contribution and other voluntary super contributions. 

Our professional financial advisors are ready to assist you at all times, ensuring that you get the best strategy and service when it comes to your financial future.

Schedule your free financial planning consultation now. Book here.

 

Disclaimer: The information (including taxation) in this website does not consider your personal circumstances and is of a general nature only – unless otherwise stated. You should not act on the information provided without first obtaining professional advice specific to your circumstances.

 

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