Whilst we were all enjoying the Christmas break, the passing of the downsizer superannuation contribution (DSC) legislation occurred. So what is this additional form of contribution and what are the specific criteria that is required to be met?
What is it?
Effective 1 July 2018, a member will be able to contribute the proceeds of downsizing into superannuation. As stated by the ATO this measure is part of a package of reforms to reduce pressure on housing affordability in Australia. It applies to the sale of a members dwelling, which was the main residence and where the exchange of the contracts occurs on or after 1 July 2018. If the member is 65 years old or over, and satisfied the eligibility criteria, up to $300,000 per person can be contributed into superannuation from the sale proceeds of downsizing. Therefore, a married couple could contribute up to $600,000 into their superannuation interests. It is important to note that, the downsizer contribution is not counted towards the member’s contribution cap or is affected by the total superannuation balance test in the year that the member makes it.
However, it does count towards the members Total Superannuation Balance and Transfer Balance Cap (currently $1.6 million). It will also affect the member’s eligibility for the age pension.
Tip: A member is only allowed to make a downsizer contribution in relation to the sale of one home only and not required to purchase another home as part of the eligibility requirements. Also, the contribution amount cannot be greater than the total proceeds of the sale of the dwelling.
What are the eligibility requirements?
The following conditions need to be satisfied by the member at the time of contribution:
- 65 years old or over. There is no maximum age limit nor is a work test required;
- The contribution amount is from the proceeds of sale of a qualified dwelling, where the contract of sale was exchanged on or after 1 July 2018;
- The dwelling was owned by the member and member’s spouse for 10 years or more prior to sale. Flexibility in circumstances are available under this rule;
- The proceeds (capital gain or loss) from the sale of the dwelling 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 dwelling was a CGT rather than a pre-CGT (acquired before 20 September 1985) asset.
- The super fund that is to receive the contribution, has received the relevant downsizer contribution form before or at the time of contribution;
- The downsizer contribution is made within 90 days of receiving the proceeds of sale (i.e. from date of settlement) or such longer time as the Commissioner allows;
- Member has not previously made a downsizer contribution to his/her super fund from the sale of another dwelling.
If you are considering using this new option to boost your superannuation balance you should first seek financial advice regarding the following.
- How the contribution will affect any government aged pensions or concessions you are currently receiving.
- The benefits of making the contribution to super vs keeping the money outside of super
- Ensure your superannuation fund will accept such contribution and if you operate a Self Managed Fund that your trust deed allows your fund to accept such contributions.