By Lisa Judge
making downsizer contributions into super
Anyone thinking about downsizing to a smaller property may want to examine the downsizer super scheme as a way to use the surplus funds from the sale to fulfil their retirement goals.
The Australian government has given individuals greater access to the downsizing measure by reducing the minimum eligibility age for downsizer contributions, extending the home sale proceeds exemption from pension asset testing and changing the income test.
In the latest federal budget handed down in October 2022, the government said it would reduce the minimum eligibility age to make downsizer contributions to 55 from 60. The measure will commence on 1 January 2023.
Currently, people aged over 60 who satisfy eligibility criteria can make a tax-free downsizer contribution to their super up to $300,000 per person and face no upper age limit. Both members of a couple can contribute and contributions do not count towards non-concessional contribution caps.*
As well as allowing people to contribute to their superannuation, this measure encourages older Australians to downsize sooner while also increasing the availability of suitable housing for families.
There will be an extension of the exemption of home sale proceeds from pension asset testing to 24 months from 12 months. The budget also outlined a change to the income test so it will apply only to the lower deeming rate (0.25 percent) to principal home sale proceeds when calculating deemed income for 24 months after the sale of the principal home. This will give pensioners more time to purchase, build or renovate a new home before their pension is affected.
In addition, the work test for those aged up to 75 who want to contribute to their super has been relaxed, providing an opportunity for many Australians to boost their super.
What does this mean?
This means that couples using both downsizer and non-concessional contribution caps (including bring-forward arrangements) could benefit by investing up to $1,260,000 combined into super, boosting the potential for greater income and even better, boosting potential tax-free earnings in retirement. Singles could benefit with up to half of this amount, $630,000.
- Tax-free contribution to super
- No work test or upper age limit
- Must be Australian-domiciled residence (excluding caravan, houseboat or other mobile home), owned by you or your spouse for at least 10 years
- Disposal must be fully or partially exempt from capital gains tax
- Previous downsizer contributions have not been made
- Contribution must be made within 90 days of receiving the proceeds of the home sale (usually within 90 days of settlement) and a Downsizer contribution into super form is provided to the super fund by the individual before or at the time the contribution is made
So how do we get to up to $1,260,000 as a combined total for couples or $630,000 for singles?
The extra amount that can be tipped into super applies when eligible individuals have greater surplus funds and take advantage of the non-concessional contribution caps and the bring-forward arrangements.
Individuals have different caps depending on their circumstances. For instance, it may be higher if the bring-forward arrangements apply, or it may be zero if the super balance is greater than or equal to $1.7 million.
Since 1 July 2021, the non-concessional contributions cap has been set at $110,000 per annum.
The non-concessional contributions cap can be changed for those individuals eligible for the bring-forward arrangement. This allows members to bring forward the equivalent of one or two years of their annual cap from future years. This means they can make contributions up to two or three times the annual cap amount over the bring-forward period. Certain restrictions apply.
It’s important to understand your own financial position and what amounts are available to contribute within the caps.
If you would like to set yourself up for a better financial future it can pay to talk to a financial planner. The team at Active Super can help you plan for your future at any stage of life with valuable advice.
Feel free to contact us on 1300 547 873 or make an appointment to see how we can help you live your best life.^
Lisa Judge is Manager, Member Advice and Education at Active Super, leading a team of advisers across metropolitan and regional NSW. Lisa has over 22 years’ experience in the superannuation industry with 16 years specialising in financial planning. She holds a Bachelor of Commerce, a Graduate Diploma and a Masters in Financial Planning, and is a Certified Financial Planner.
*Eligibility criteria applies to all reforms. Talk to us or visit the ATO website to find out more. The changes described in this document are subject to legislation and may be amended or cancelled before they become law.
^Please note, fees may apply. Whether or not a fee applies will depend upon the scope of the financial advice you require. Your financial planner will discuss any fee payable when meeting with you and, if a fee is applicable, will advise you of the fee should you decide to proceed with obtaining the advice.
Any advice in this article is general in nature and has been issued by LGSS Pty Limited (ABN 68 078 003 497) (AFSL 383558), as Trustee for Local Government Super (ABN 28 901 371 321)(‘Active Super’). This article does not take into account your personal objectives, financial situation or needs. Before acting on it, you should consider the appropriateness of it having regard to these matters. If you would like advice that takes into account your personal circumstances, please contact a financial adviser.