Q: I am considering making use of the home downsizing rule to top up my super, when it takes effect in July. Do I actually need to “downsize” when I sell the family home? Do I even need to buy another property?
A: According to Peter Crump, a private client adviser at financial planning group ipac, you do not need to actually downsize, when you sell your family home.
Crump, who spoke at last month’s SMSF Association National Conference, said there was nothing to stop you “upsizing” instead.
“You can buy a new home for more and if you have extra cash you can still make a downsizer contribution,” he said.
In fact, there is no requirement to buy a new home at all.
From July 1, a person aged 65 or over will be able to make a non-concessional superannuation contribution of up to $300,000 from the proceeds of selling their home. There is no upper age limit.
The measure will apply to the sale of a principal residence owned for the 10 years or more.
Both members of a couple will be able to take advantage of this measure for the same home.
These contributions will be in addition to those currently permitted under existing caps, the age test, work test and $1.6 million limit on non-concessional contributions.
It is worth noting that the transfer balance cap still applies, so if you already have $1.6 million in pension phase, the contribution will have to go into accumulation.
It is also important to note that the downsizing contribution must be made within 90 days of receiving the sale proceeds.
The Government is hoping to remove the barriers to downsizing for older people and facilitate more efficient use of the housing stock by freeing up larger homes.
However, the proceeds will count towards Centrelink and Department of Veterans’ Affairs income and assets tests, which may make downsizing unattractive for people who are factoring the age pension into their retirement income plans.
Consultant Rice Warner says a couple owning a home and with other assets, including superannuation, of $350,000 would be eligible for a full age pension of $34,800 a year.
If they capitalise $600,000 and put it into superannuation they lose the whole pension.