Introduction
Older Aussies aged 55 and up can give their super balance a real kick with downsizer super contributions. Imagine turning the cash from selling your home into a stronger retirement nest egg. You can pop this money straight into your super fund, moving savings into the retirement phase. It’s like giving your financial future a big, comfy cushion to land on. Ready to find out how this can work for you?
This guide offers essential information about downsizer contributions and who is eligible to make a downsizer contribution. It will clarify the contribution rules, including how much you can contribute and how these contributions can help boost your super without counting towards contribution caps. Understanding these rules is key for anyone considering using the sale of their home to help boost their super savings.
What are Downsizer Super Contributions?
Definition of Downsizer Contribution
A downsizer contribution is a type of contribution into superannuation that allows eligible individuals aged 55 and over to contribute funds from the sale of their home. This contribution is considered a non-concessional contribution, meaning it is made after tax. Importantly, a downsizer contribution does not count towards the annual non-concessional contribution caps.
Purpose of Downsizer Contributions
The main purposes of downsizer contributions are:
- Boosting Retirement Savings: By allowing individuals to use the proceeds from selling their family home, the downsizer contribution scheme provides an opportunity to significantly increase their super balance.
- Encouraging Suitable Downsizing: This initiative aims to encourage older individuals to downsize to more suitable homes, potentially freeing up larger family homes for younger generations.
Eligibility for Making Downsizer Contributions
Age Requirements
To be eligible to make downsizer super contributions, you must be 55 years or older at the time of making the contribution. This lower age threshold, effective from 1 January 2023, allows more individuals to take advantage of the scheme. Importantly, there is no upper age limit, ensuring that older Australians can continue to boost their retirement savings without age restrictions.
Home Ownership and Residency Rules
To qualify for downsizer contributions, you or your spouse must meet the following criteria regarding homeownership and residency:
- Ownership Duration: You or your spouse must have owned the home for at least 10 years before its sale. This period is typically calculated from the settlement date of purchase to the settlement date of sale.
- Property Location: The home must be located in Australia. Eligible properties exclude caravans, houseboats, and other mobile homes.
- Capital Gains Tax Exemption: The sale of your home must generally be exempt or partially exempt from capital gains tax under the main residence exemption. This typically means the property has been your principal place of residence for some period during its ownership.
Meeting these requirements ensures that you can effectively utilise downsizer contributions to enhance your retirement savings.
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Contribution Limits and How Much You Can Contribute
Maximum Contribution Amount
The maximum downsizer contribution you can make to your superannuation fund is $300,000 per person. For couples, this allows for a total contribution of up to $600,000, provided both individuals are eligible to make a downsizer contribution. This scheme enables individuals to boost their super savings using the proceeds from the sale of their family home.
Example Scenario:
- Couple: George and Jane
- Home Sale Proceeds: $800,000
- Eligible Contribution: Both George and Jane can each contribute up to $300,000 to their respective super accounts.
Contribution Cannot Exceed Sale Proceeds
While the maximum downsizer contribution is $300,000 per individual, it’s crucial to ensure that the total contribution does not exceed the sale proceeds from your home. Specifically, the contribution limit is the lesser of:
- $300,000 per person
- Gross sale proceeds from the home
This rule ensures that the downsizer contribution is directly funded by the sale of the main residence.
Example Scenario:
- Couple: Bruce and Betty
- Home Sale Proceeds: $400,000
- Maximum Individual Contribution: $300,000 each
- Total Potential Contribution: Although each can contribute up to $300,000, their combined contributions cannot exceed 400,000 from the home sale.
They have a few options for allocating their contributions:
- Equal Split: Each contributes $200,000.
- Uneven Split: Betty contributes 300,000 and Bruce contributes $100,000.
The key point is that their combined downsizer contributions must not exceed the $400,000 received from the sale of their home.
Benefits of Downsizer Contributions
Contributions are in Addition to Contribution Caps
Downsizer contributions offer a significant advantage because they are treated differently from regular super contributions regarding contribution caps. Specifically, a downsizer contribution does not count towards either your annual concessional or non-concessional contributions caps. This means you can:
- Make a downsizer contribution in addition to any other eligible contributions without exceeding the usual limits.
- Boost your superannuation balance beyond what might normally be possible under standard contribution rules.
- Even if you have total super savings greater than $1.9 million, you can still make a downsizer contribution.
Potential Tax Efficiency
Downsizer contributions can also provide potential tax benefits within the superannuation environment. As downsizer contributions are non-concessional contributions, they are made after tax, meaning no tax is paid as the money enters your super fund. This can be tax-efficient for several reasons:
- Once the money is inside your super account, it is generally taxed at a lower rate than it would be outside of super, particularly in the retirement phase.
- Although downsizer contributions themselves are not tax-deductible, the earnings on investments within your super fund are taxed concessionally.
- In the retirement phase, these earnings can be tax-free, enhancing the overall tax efficiency of your superannuation.
How to Make a Downsizer Contribution
Steps to Make a Contribution
To make a downsizer contribution to your super fund, follow these key steps:
- Contact your super fund:
Check with your super fund to ensure they accept downsizer contributions. Most funds will accept eligible downsizer contributions. - Complete the Downsizer contribution into super form:
Obtain and fill out the Downsizer contribution into super form (NAT 75073), available on the Australian Taxation Office (ATO) website. - Submit the form to your super fund:
Provide the completed form to your super fund either before or when you make your contribution. If you are making multiple downsizer contributions, you must submit a separate form for each contribution. - Make your contribution:
Ensure your contribution is made to your super fund within 90 days of receiving the proceeds from the sale of your family home.
Importance of the Downsizer Contribution Form
Submitting the Downsizer contribution into super form is a critical step in the process. Without this form, your super fund may not accept your contribution as a downsizer contribution. Instead, it might be treated as a standard non-concessional contribution, which would then count towards your contribution caps.
The Downsizer contribution into super form ensures that your super fund correctly identifies your contribution as a downsizer contribution. This distinction is important because downsizer contributions do not count towards your annual contribution caps and can be made even if you have a total super balance greater than $1.9 million. By submitting this form, you ensure that you receive the intended benefits of making a downsizer contribution.
Timeframe for Making Contributions
To qualify as a downsizer contribution, you must make your contribution to your super fund within 90 days of receiving the proceeds from the sale of your home. This timeframe generally starts from the date of settlement.
Adhering to the 90-day period is essential to ensure your contribution is accepted as a downsizer contribution. In certain circumstances, the Australian Taxation Office (ATO) may grant an extension if delays are due to factors beyond your control, such as serious illness or a death in the family. However, extensions are not typically granted to allow more time to meet the age eligibility requirements. Therefore, any request for an extension should be made within the initial 90-day period.
Conclusion
Downsizer super contributions offer a valuable opportunity for Australians aged 55 and over to boost their superannuation balance using proceeds from selling their home. This type of contribution allows individuals to make a significant contribution into their super fund without it counting towards annual contribution caps, providing a unique advantage to increasing retirement savings. By using money from the sale of their family home, people can move super savings into the retirement phase and improve their financial position for retirement.
Considering the potential benefits of downsizer contributions to enhance your superannuation and secure your financial future? Contact Money Path today to explore how downsizer contributions could be a beneficial strategy in your retirement plan. Our specialised knowledge can help you navigate the eligibility requirements and contribution rules to make informed decisions about your superannuation.
