An Age Old Property Dilemma Solved by the Superannuation Downsizer Contribution Scheme
This article explores how the "Superannuation Downsizer Contribution Scheme" can assist a retired couple to deal with the common issue of needing to sell their current home before being able to purchase their next home.
The Dilemma... Christopher and Lyn are a retired couple in their seventies and are looking to sell their family home and buy a property by the coast. They've found a house that they like, but their current house hasn't sold. They have money in their super fund which they could withdraw to pay for the property, but they've worked hard over the years to build up their super assets and this is where they'd like to keep their wealth as they know that superannuation is the most tax effective environment for their retirement savings.
"People over 65 who have retired haven't previously been able to make contributions to their super fund; but now they can thanks to the Superannuation Downsizer Contribution Scheme."
How Does It Work?
From 1 July 2018, people aged 65 and over can make a contribution of up to $300,000 from the proceeds of selling what was once their main residence (family home).
This is very favourable as generally a person over 65 can't make contributions to superannuation unless they meet a "work-test" and even then they are limited to only $100,000 per year until age 75 when they can no longer contribute at all.
The key features of the downsizer contribution scheme are as follows:
- The individual making the contribution must be aged 65 or over at the time they make the contribution (there is no maximum age limit).
- The dwelling must have been owned for at least 10 years and must have qualified for the main residence CGT exemption.
- The contribution must be no more than the lesser of $300,000 or the proceeds from the sale and needs to be made within 90 days of the sale.
- The individual must notify their superannuation fund in the approved form at the time the contribution is made.
- The individual must not have previously made a downsizer contribution.
- The contract for the sale of the property needs to be after 1 July 2018.
Dilemma solved ... Christopher and Lyn can withdraw the money they need from their super fund to purchase the house by the coast and then when the family home does sell the proceeds can be returned back into the superannuation environment using the "Downsizer Contribution Scheme".
Other Points:
- Both Christoper and Lyn can make a downsizer contribution, meaning the maximum a couple can contribute is the lessor of $600,000 or the proceeds from the sale.
- Even if the property is owned 100% by Christopher; his spouse Lyn is still able to make a contribution.
- The contribution can be made regardless of Christopher and Lyn's superannuation balance.
- Christopher and Lyn don't have to "downsize" their house; in fact they can "upsize" if they choose. There is actually no requirement to purchase another dwelling following the sale.
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