News » Downsize your home, upsize your super

January 16, 2019

Over 65? Thinking of selling your home? Since 1st July 2018 you may be eligible to contribute up to $300,000 ($600,000 for a couple) from the proceeds of the sale of your home to your superannuation fund.

This incentive, known as the ‘downsizer contribution’, is part of a federal government program to improve housing affordability. It offers a further opportunity for some home sellers to benefit from the tax advantages associated with superannuation. On the downside it may adversely affect eligibility for age pension.

Rules apply

Of course, it wouldn’t be a super contribution without lots of rules, and the main ones are:

Curiously, given the name of this initiative, you don’t need to physically downsize your home. If you have the funds available, you could buy a bigger or more expensive abode. In fact, you don’t even need to buy a new home at all.

The effect on super

On the superannuation side, you can make a downsizer contribution if your total super balance exceeds $1.6 million. However, the contribution will count towards your transfer balance cap (i.e. the cap on the amount you can use to establish a tax-free superannuation pension). Even so, it may still be advantageous to hold these funds in the concessional (15%) tax environment applicable to the super accumulation phase.

And what about the age pension?

Anyone thinking of downsizing needs to consider the impact on eligibility for age pension. A main residence is exempt from the assets test, but if it’s sale frees up money – for example through a buying a cheaper home or renting – those funds will be assessed under both the income and assets test even if they are used to make a downsizer contribution. This may result in a reduction or loss of age pension.

The extent to which you can benefit from making a downsizer contribution depends very much on your individual situation. And it isn’t just a financial issue; lifestyle considerations are also important. Before making a decision it’s important to consider all the angles, so call us to speak to one of professional team members about whether a downsizer contribution is right for you.