Since 1 July 2018 Australian seniors have been able to make what is known as a “Downsizer Contribution” to their superannuation fund of up to $300,000, which means if you are a couple you could get a combined $600,000 into superannuation ($300,000 each) if you downsize.
The benefits of the downsizer contribution are that you don’t have to buy another home and you don’t need to meet the normal tests in order to make the contribution. You see to make a voluntary super contribution people aged 67 to 74 normally need to meet a work test (working at least 40 hours within 30 consecutive days) while people aged 75 and over are generally not eligible to make any voluntary contributions. Other benefits of the Downsizer contribution include that it doesn’t count towards the annual contribution caps and is not limited by the (as at 1 July 2021) $1.7m total superannuation balance. However, the $1.7m transfer balance cap (the amount you can have in the tax free retirement phase) still applies so if you have reached your limit here your downsizer contribution will need to kept in accumulation (where earnings are taxed). You can read the specfics on the ATO website here.
To qualify to make a Downsizer Contribution must be over age 60 and be contributing funds from a home that you (or your spouse) have owned for the last 10 years or more (the home cannot be a caravan, houseboat or mobile home). The contribution will need to be made within 90 days of the home being sold (typically the date settlement occurs) and is limited to one property and the value of that property (so if the property is worth less than the amount you want to contribute you cannot sell another and claim a Downsizer Contribution on that one too).
For people who receive the Age Pension it’s important to realise that your home is normally exempt from pension means tests (assets test and income test), but superannuation normally is not, so moving money from your home to superannuation could cause your pension to reduce. If you are under age pension age then as a general rule your superannuation is exempt from pension means testing. At the moment age pension age is 66 and 6 months and since you need to be at least 60 to make the contribution, the window is short. It’s also worth noting that your superannuation is also normally included in means testing for residential aged care and home care packages.
As you can see it’s complicated. And that’s before we start talking about the tax and estate planning considerations. If you are thinking about making a Downsizer Contribution it is best to seek specialist advice first. You can contact us here.