The federal government is looking to encourage those aged over 65 to downsize their homes and free up housing stock for young families. The incentive for doing so is the ability to put up to $300,000 per person into superannuation from 1 July 2018.
Currently if you are over 65 you cannot add to your superannuation pension unless you are still working and under the $1.6 million limit. However, from 1 July 2018 the government has provided another opportunity to add to your superannuation even if you are over the $1.6 million limit. They have brought in a one-off opportunity to add $300,000 per person to superannuation providing it is timed with the sale of your primary residence.
This new type of contribution is designed to top up your superannuation balance when you downsize your home and is therefore commonly referred to as the “downsizer contribution”. However, this opportunity is also open to people simply switching houses or even upsizing, as there is no requirement that you use the sale proceeds or reduce the value of your home.
An example of how the downsizer contributions is applied as intended, is where a couple sells a home for $1.3 million and buys a new one for $700,000 and puts the difference of $600,000 into superannuation and converts it to pension straight away.
However, in my experience few people actually downsize. In fact, more people upsize, than downsize. The good news for those upsizing is that the downsizer contribution can still be utilised. Where a couple sells their family home and moves into another property of the same or even greater value, they have an opportunity to contribute other assets into superannuation. In this scenario if you had $1m outside superannuation you could use the new rules to add $600,000 to your superannuation and effectively move most of your assets into superannuation, and in so doing pay no tax on your pension account. Additionally, there would be no tax in your own names as you have reduced your assets enough to keep your income under the tax-free thresholds.
This is a great opportunity, however there are a number of tests and steps that need to be met. Care will need to be taken to make sure it is executed correctly to ensure you’re realising all the benefits of the downsizer contribution and avoid the pitfalls of ineligible or excess contributions. If you are considering selling your family home, you should talk to an adviser to see if this opportunity is available to you and to make sure you consider the advantages and implications before acting.
Consideration should also be taken for those eligible for the downsizer contribution to potentially delaying any family home sale until 1 July this year.
If you would like to know more about the downsizer contribution, please contact your Altitude Adviser.
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