A Guide to Downsizing to Boost your Retirement Savings

27 February, 2018 by Ian Fox Ian Fox // Downsizing

This article is published by Modoras Pty Ltd

Downsizing home to boost SUPER

14-Point  Easy-to-read Guide to Downsizing your Home to Boost your SUPER

Thinking about downsizing? Perhaps your home is too big now that you are becoming empty nesters or perhaps you need the funds to create your retirement lifestyle? Learn our guide to downsizing to boost your retirement savings.

From 1 July 2018, Australian homeowners aged 65 years and older will be eligible to contribute up to $300,000 as a non-concessional (after-tax) contribution to their superannuation.

Why would you place the funds in your superannuation? By placing the funds in your superannuation. Then paying yourself a pension from that superannuation all earnings on the investment including Capital Gains are generally tax free. As is the pension you would be receiving.

What you need to know:

  1. The contribution must be from the sale proceeds of their family home that they have owned for at least 10 years.
  2. The family home must be the contributor’s main residence and must be eligible for the main residence exemption for capital gains tax purposes.
  3. Couples will be able to contribute up to $300,000 each to make a total contribution of $600,000 per couple.
  4. Super contributions made as a result of the new downsizing rules are not counted towards non-concessional contributions caps.
  5. An individual taking advantage of the downsizing measures must make the contributions within 90 days of receiving the sale proceeds.
  6. Centrelink currently give pensioners a 12-month exemption under the assets test for the Age Pension.
  7. Australians are only able to use the downsizing contribution (which can be multiple contributions up to $300,000) from the sale of a home once. You cannot use this policy again at a later date.
  8. The existing ‘work test’ for voluntary contributions made by Australians aged between 65 and 74 do not apply to the sale proceeds of the main residence. The existing contribution rules have people in this age group having to prove they had gainful employment for 40 hours within a 30-day period during the year the voluntary contribution was made.
  9. Those 75 years and over and are currently unable contribute to their super are also able to contribute up to $300,000 from the sale proceeds of their home.
  10. The existing $1.6 million transfer balance cap does continue to apply. To find out more about this balance cap, click here.
  11. There is no requirement to purchase another home after they sell their main residence. There is also no restriction of the purchase price or size of a replacement home.
  12. Before accepting contributions under the downsizing scheme, super funds must obtain verification from the ATO that downsizing contributions are from the sale of a family home owned for more than 10 years. Forms confirming this, must be submitted to the super fund before or at the time of making the downsizing contribution.
  13. Downsizing contributions will be counted for the assets and income tests used to determine eligibility for the Age Pension and DVA benefits.
  14. Costs with the sale of a family home can be substantial if high stamp duty and land taxes apply.

The new downsizing rules may not be an ideal strategy for everyone. To find out if this is an ideal strategy to boost your retirement savings to create a comfortable retirement, talk to a Modoras professional today on 1300 888 803.

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This article is published by Modoras Pty Ltd ABN 86 068 034 908. This article contains general information only and is not intended to represent specific personal advice (financial or credit). No individual personal circumstances have been taken into consideration for the preparation of this material. It is recommended that you obtain your own personal professional advice before making any financial or business decision.

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