Downsizer contributions

Often when the Federal Government introduces a new rule or regulation regarding superannuation it takes a few years for everyone to fully understand the legal implications of what has been put in place and so it is with downsizer contributions.

So just to bring everyone up to speed, downsizer contributions, which were introduced in July 2018, allow homeowners to make a one off ‘downsizer contribution’ of up to $300,000 on the sale of their family home.

If you are part of a couple, you can each, make a downsizer contribution of $300,000 to superannuation or a combined total of $600,000. This can be a big game changer for many people as they enter retirement.

As always in the superannuation industry there are a raft of rules surrounding this, but the big plus of the downsizer contributions is that they are allowed in addition to other concessional and non-concessional contributions. And while you might be thinking I know all this already there are some issues that I think it would be helpful to clarify.

Firstly, there is no age limit on downsizer contributions. While all non-concessional contributions are stopped at age 75 and concessional contributions are only allowed when you are undertaking paid work, downsizer contributions happen at any age.

Secondly, your name doesn’t need to be on the title of the family home being sold for you to be able to make a downsizer contribution. This is important given the high level of later life divorces and the fact that often couples come together and decide to live in a house owned by just one of them.

As long as they have lived in the family home together and treated it as a communal property for 10 years and meet all the other requirements, then both partners are entitled to make a downsizer contribution if that property is sold.

Finally, there is no requirement that the funds being contributed to super have come directly from the sale of the family home. So, this is a little bit complicated.

Say you own your own family home and its worth $ 1 million and you have an investment property that is worth $1 million, and you are thinking of selling both. If you meet all the other requirements for making a downsizer contribution, you can sell both properties, as a couple, contribute $600,000 to super and then buy a $1.4 million home.

Why would you do this? Well, there might be many reasons. You might be feed up with all the taxes and costs associated now with owning a rental property and believe its time to sell. You might just want to arrange your finances so they are simpler and so you don’t have to lodge another tax return.

You might want to move closer to your children and find all the properties there are more expensive than your current home. You might have passed age 75 and believe your opportunities to contribute to super have passed.

Understanding just how downsizer contributions can work for you, may help provide you with the perfect solution to structuring your financial affairs in retirement.