Are you over 60 and selling your home? If you have owned it for over 10 years you may be eligible to contribute up to $300,000 (or $600,000 per couple) to superannuation with the proceeds, where the earnings could be tax exempt.
Why is it good to have money in superannuation, once you’re over 60?
Throughout your working life, when you are accumulating super, the earnings are taxed at 15%. Once you “meet a condition of release” such as turning 65, or reaching your preservation age* and retiring, you can put your superannuation in “pension mode”, where you pay 0% tax on the earnings. There are rules with pension accounts, such as you must draw down a minimum amount each year according to how old you are (e.g. a 70 year old must draw down 5%), but these pensions from your super are easy to set up. Most super funds have them.
Because superannuation is a legitimate “tax shelter” – tax of 15% while you’re accumulating it and then 0% when you are spending it – there are limits on how much you can contribute. Plus, once you are 75 or older you can’t put any more money in unless it’s the compulsory super paid by your employer, should you happen to still be working.
However, the Downsizer Contribution makes it possible for those aged 55 and over to put additional money into super where the earnings can be tax exempt.
The contributor must:
- be 60 years or older when the contribution is made
- have owned the home for 10 years or more before the sale
- not have previously made a Downsizer Contribution.
The home must:
- be your main residence
- be in Australia
- not be a caravan, houseboat, or other mobile home
- have qualified for the main residence capital gains tax (CGT) exemption (in whole or in part), or would have qualified if the home was a pre-CGT asset
- be sold on or after 1 July 2018
The contribution must:
- not exceed $300,000
- be made within 90 days of selling your home (usually the date of settlement), or such longer time as allowed by the Australian Taxation Office
- be established as a Downsizer Contribution by completing and sending a Downsizer Contribution form to your super fund.
Tax, contribution caps and other info:
You won’t pay tax on the money you add to super from the sale of your home, and it won’t count towards contributions caps. However, a pension account has a transfer balance limit of $1.7 million*, so that is the most you can start a pension with and pay 0% tax on earnings.
The amount you can contribute can’t be greater than the total proceeds of the sale of your home. However, it is not a requirement that you “downsize”: it is also possible to “upgrade” your home and use separate money held elsewhere – e.g. from term deposits, or in managed funds – to make the contribution with.
A Downsizer Contribution is not tax deductible, and it may affect your eligibility for the Age Pension through the Asset test. Therefore, it is not necessarily right for everybody. You should obtain independent financial advice tailored to your circumstances.
*Your preservation age is determined by your date of birth; the government’s Moneysmart website has a calculator here.
