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Downsizing contributions

13 October 2017

Are you thinking of downsizing your home to fund your retirement?

Are you age 65 or over and thinking about downsizing your family home? The government will now allow you to contribute up to $300,000 (so $600,000 combined for a couple) of any profit you make from the sale of your family home, if owned for 10 years or more, into your super. The measure could offer a practical way to translate profit from the sale of your home into a regular income in retirement from your super.

What are the advantages?

Existing age and balance rules that restrict contributions to super, particularly for those aged 65 or over, won’t apply under the downsizing measure. Currently, you can’t make non-concessional (post-tax) contributions to your super after you reach age 65, unless you meet a work test (40 hours of gainful employment within a 30-day period in the financial year the contribution is made). If you’re over age 75, you can’t make any contributions to your super. Further, if you have more than $1.6 million in super you can’t make further non-concessional contributions to super. Neither the age tests nor the over $1.6 million balance rule apply under the downsizing measure, meaning contributing the proceeds from the sale of a principle residence may be the only way to contribute more to super once retired.

What else is there to consider?

There are a number of things you should consider. Firstly, you have 90 days from the date of settlement to contribute the proceeds from the sale of your home into super. Secondly, if you intend to use your home proceeds to help fund a regular income in retirement through a super income stream, it’s important to note that no more than $1.6 million can be transferred from a super account into a tax-free super income stream. This includes any monies contributed from the sale of your home. Finally, it’s important to remember that your super balance is assessed for your eligibility for the government age pension, whereas the value of your family home is not. So you may lose your entitlement to the age pension when an exempt asset, being your principle residence, moves into super, an asset-tested investment. 

As with any major financial decision as you approach and enter retirement, we encourage you to speak to a financial adviser. To speak to a Sunsuper adviser, just call us on 13 11 84.