Mar 2019 4 Minutes
What is the Superannuation Downsizer Strategy?
One of the significant changes announced in the 2017 Federal Budget was "the downsizer strategy". It took effect from 1 July 2018 and was intended to help in opening up the ability for more people to buy a home. In this case, the strategy was aimed at encouraging those aged 65+ to consider selling their property and moving somewhere smaller. The important point to note on the downsizer strategy, is that it opens up the opportunity for individuals to top up their super.
Who should be interested?
There are already existing opportunities for people aged between 65 and 74 to top up super, but these are subject to meeting a work test. The advantage of the downsizer strategy is that there is no requirement to meet a work test to make this contribution. This is valuable for people aged between 65 and 74, but it is even more advantageous for people aged at 75+ who may still wish to contribute to their super (whether they are working or not).
It doesn't matter how much you already have in super. The total superannuation balance threshold of $1.6 million that would normally impede you to make additional non-concessional contributions does not apply.
If eligible, you can make an additional contribution of up to $300,000. It’s an after-tax contribution so no tax is paid on the way in, and it can be withdrawn from super tax-free. You can also make further contributions to your super as this contribution does not count towards your other contribution caps. For couples if your spouse also qualifies, then you both can contribute $300,000 each even if only one of you owned the property.
Who is eligible?
To be eligible, you must sell a property that is in Australia that you or your spouse have owned for at least 10 years. The contract for sale must be entered into on or after 1 July 2018 and the property needs to have been your primary place of residence for some point during its ownership. Fundamentally, you need to be eligible for an exemption from capital gains tax when it's sold - whether that be a full exemption or partial exemption.
If your property sells for more than $600,000, you can contribute up to $600,000 to super (being $300,000 maximum for each member of a couple). If it is sold for less than $600,000, you can only make a downsizer contribution up to the sale price (subject to the maximum permissible per person).
How does it work?
You must be in a position where you are thinking about selling your home. It is worth noting that you do not necessarily need to move to a home that is smaller or cheaper to use the downsizer strategy. As long as you (and the property that is sold) meets all the relevant requirements, there is no need to actually "downsize"
The most important issue to be aware of is around timing of the contribution to super. There is a 90 day time limit from receiving the property sale earnings to putting the money into super.
You need to notify the superannuation fund at (or before) the time of making the contribution that the contribution is a downsizer contribution. If the contribution is made outside of these requirements, it may be regarded as a non-concessional contribution which could raise issues about excess contributions, or even ineligibility to contribute.
Given many Australians have their savings invested in their home, this opportunity to upsize super may offer a welcome relief to many. Getting it right is important and you should be seeking professional guidance.
Iggy Moro or David Hatton from Walker Wayland Wealth can give you the guidance necessary if you are thinking about a downsizer contribution.