Boosting your super by selling the family home

A super home sale

As you get older there are all kinds of reasons for deciding to sell your family home. You might have more space than you need, you might want a sea or tree change, or to move closer to your grandchildren. You might want the freedom to travel, or simply no longer need a home of your own.

Now, if you’re eligible, you could use some of the proceeds of the sale to boost your retirement savings more tax-effectively.

What is the downsizer contribution?

From 1 July 2018 the downsizer super contribution will allow eligible Australians over the age of 65 to direct some of the proceeds from the sale of a long-held home into their super. The maximum amount you can contribute is $300,000 per person, so a couple could contribute up to $600,000.

You don’t need to buy a new home, and, if you do decide to purchase a new property, it doesn’t have to be smaller or cheaper.

What are the possible benefits?

1. A higher super balance

If you’re retired or about to retire and haven’t been able to save as much super as you’d like, you can use the downsizer contribution super strategy to top up your balance.

2. You could pay less tax

You may be able to take advantage of the concessional tax treatment of the super system.

For example, if your contribution remains in the accumulation phase of super, any earnings that accrue on this amount are taxed at up to 15 percent. Or, if you use your contribution to start a super income stream, earnings that accrue on this amount are taxed at 0 percent.

If you instead invested the sale proceeds in your own name, you would pay tax on earnings at your marginal rate (plus Medicare levy), which could be higher.

You can also make lump sum withdrawals, which will be tax-free.

Are you eligible?

You may be able to make a downsizer contribution if:

• You’re 65 or older at the time you make a downsizer contribution. There’s no upper age limit.
• The amount you’re contributing is from the proceeds of selling your home, or a property you’ve treated as your main residence for tax purposes, where the contract of sale was exchanged on or after 1 July 2018.
• Your home was owned by you or your spouse for at least ten years prior to the sale.
• Your home is in Australia and is not a caravan, houseboat or other mobile home.
• The proceeds (capital gain or loss) from the sale of the home are either exempt or partially exempt from capital gains tax (CGT) under the main residence exemption. Or would be entitled to such an exemption if the home was a CGT asset rather than a pre-CGT asset.
• You’ve provided your super fund with the downsizer contribution form either before or at the time of making your downsizer contribution.
• You make your downsizer contribution within 90 days of receiving the proceeds of sale, which is usually the date of settlement.
• You haven’t previously made a downsizer contribution to your super from the sale of another home.

(Source: Australian Taxation Office Downsizing contributions into superannuation)

Downsizer contributions aren’t subject to some of the other restrictions that apply to certain other super contributions.

• Eligibility will not be based on having a total superannuation balance (TSB) of less than $1.6m like non-concessional contributions.
• You don’t need to meet a work test (completion of 40 hours work within a 30-day period during the financial year).
• Downsizer contributions aren’t assessed against your non-concessional (after-tax) contribution cap.

Other things to consider

• While eligibility to make a downsizer contribution is not tested against your total super balance, once you have made a downsizer contribution, it will form part of your TSB. Eligibility to make certain types of super contributions in the future may be limited by this amount.
• Downsizer contributions are not tax-deductible.
• Unlike your home which is not assessed by Centrelink while it is your main residence, your super balance is assessed as an asset once you reach your Age Pension age. If you receive any means-tested social security or Department of Veterans' Affairs income support payments, you should seek advice to understand the impact that selling your home will have on your entitlements.

You can find more information about the downsizer super contribution on the ATO, opens in new window website.