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Federal Budget Deep Dive: Downsizer contribution eligibility age to be reduced

Article By Brett Moxey | | Financial Planning
Federal Budget Deep Dive Downsizer contribution eligibility age to be reduced.

Changes in the Federal Budget to the downsizer contribution eligibility age may impact on how you plan your financial future. Especially if you’re an Australian getting into your 60s.

A tax-free super bonus of $300,000 may even be available to you, read on to understand the essentials…

Effective from July 1 2022, the superannuation downsizer contribution eligibility age is being reduced from 65 to 60 years of age.

The downsizer contribution, which was first introduced from 1 July 2018, allows you, if eligible, to make a one-off, post-tax contribution to super of up to $300,000 (per person) from the sale proceeds of your home.

The Government has introduced this measure so older Australians can downsize to a more appropriate home. Additionally, this will free up stock of larger homes for younger families.

Sounds good, but how do I take advantage of this new policy?

For Australians over 60, you can now contribute up to $300,000 from the proceeds of the sale of your home as a downsizer contribution, within 90 days of transfer of ownership.

The downsizer contribution will not count against your concessional, non-concessional, Capitals Gains Tax (CGT) or personal injury contribution caps and will not be subject to the Total Super Balance cap or work test requirements.

This contribution will be a tax-free deposit, meaning your fund will not have to pay 15% tax on the contribution.

The benefit of adding funds to your super is earnings on your superannuation savings are concessionally taxed at a maximum rate of 15% or 0% in pension phase.

If you are over 75 and don’t need to meet the standard work test this strategy provides you with a rare opportunity. It allows you to contribute to your superannuation outside of the mandated super contributions rules.

This means making a downsizer contribution to super is a tax-effective way of investing capital freed up through the sale of your home for your retirement.

Things to tick off before you qualify:

As part of determining whether you can make the most of this policy, you should also consider:

  • You must be age 60 or over to be eligible to make the downsizer contribution. Either you, your spouse or ex-spouse must have owned the property for at least 10 years prior to sale. You must have lived in the property for at least part of the time you owned it. You must also qualify partly or fully for the main residence capital gains tax exemption. The contract of sale must be entered into after 30 June 2018.
  • To have the contribution treated as a downsizer contribution, you must notify your super fund trustee. To do this, you must use an approved form before or at the time the contribution is made.
  • Not all super funds will accept downsizer contributions. You need to check with your adviser or fund if it can.

Contact your Altitude Adviser if you are considering selling your home and will have surplus funds to invest. We can work with you to make this happen.

You can also find out more about the details of downsizer contributions at the official Australian Taxation Office page.

Take a look at our recap of the Federal Budget 2021 to learn about other important changes to the budget.

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