Is 'downsizing' worth it?

‍From 1 January 2023, those 55 and over can make a 'downsizer' contribution to superannuation.

Downsizer contributions are an excellent way to get money into superannuation quickly and now that the age limit has reduced to 55 from 60, more people have an opportunity to use this strategy if it suits their needs.

What's a 'downsizer' contribution?

If you are aged 55 years or older, you can contribute $300,000 from the proceeds of the sale of your home to your superannuation fund.

Downsizer contributions are excluded from the existing age test, work test, and the transfer balance threshold (but are limited by your transfer balance cap).

For couples, both members of a couple can take advantage of the concession for the same home. That is, if you and your spouse meet the other criteria, both of you can contribute up to $300,000 ($600,000 per couple). This is the case even if one of you did not have an ownership interest in the property that was sold (assuming they meet the other criteria).

Sale proceeds contributed to superannuation under this measure count towards the Age Pension assets test. Because a downsizer contribution can only be made once in a lifetime, it is important to ensure that this is the right option for you.

Let's look at the eligibility criteria:

• You are 55 years or older (from 1 January 2023) at the time of making the contribution.
• The home was owned by you or your spouse for 10 years or more prior to the sale – the ownership period is generally calculated from the date of settlement of purchase to the date of settlement of sale.
• The home is in Australia and is not a caravan, houseboat, or other mobile home.
• The proceeds (capital gain or loss) from the sale of the home are either exempt or partially exempt from capital gains tax (CGT) under the main residence exemption or would be entitled to such an exemption if the home was a CGT rather than a pre-CGT asset (acquired before 20 September 1985). Check with your accountant if you are uncertain.
• You provide your super fund with the Downsizer contribution into super form (NAT 75073) either before or at the time of making the downsizer contribution.
• The downsizer contribution is made within 90 days of receiving the proceeds of sale, which is usually at the date of settlement.
• You have not previously made a downsizer contribution to their super from the sale of another home or from the part sale of your home.
  

Do I have to buy another smaller home?

The name 'downsizer' is a bit of a misnomer. To access this measure, you do not have to buy another home once you have sold your existing home, and you are not required to buy a smaller home – you could buy a larger and more expensive one. If you are contemplating using 'downsizer', let's have a chat about your objectives and whether this is the right fit for you. There is a lot to unpack with the downsizer rules, the timing and its suitability.

__________

GENERAL ADVICE WARNING | The information contained in this article is general and is not intended to serve as advice. No warranty is given in relation to the accuracy or reliability of any information. Readers should not act or fail to act based on information contained herein. Readers are encouraged to contact a professional advisor for advice concerning specific matters before making any decision.