After months of deliberation on when downsizer contributions will take effect, the day is almost here and it's time to gather all the information and find out if you are eligible for these new contributions. We've put together a guide explaining everything you need to know about the new law and what it means for you and your property. Keep reading to find out more.
WHAT ARE DOWNSIZER CONTRIBUTIONS?
Downsizer contributions are what's known as 'superannuation' contributions which have been derived from the sale proceeds of the former or current principal place of residence of a taxpayer (or spouse).
The Government has amended the superannuation and tax legislation to allow these contributions to be made, and the necessary legislation of the downsizer superannuation contribution (DSC) was passed in December 2017. This means that on the 30th of June 2018, this will finally be possible.
As a result of this new legislation, there will now be a 4th category of superannuation contribution added to the current three. The most common still stand as concessional and non-concessional contributions. The 3rd category includes contributions made as a result of small-business capital gains tax concessions.
Now, the fourth will be downsizer contributions. The justification for these types of contributions is to help remove the barrier that typically restricts those aged 65 or older from downsizing their homes. The government hopes that by removing this barrier, the pressure on the housing market will be reduced.
HOW DO DOWNSIZER CONTRIBUTIONS WORK?
From July of this year, those eligible can contribute up to $300,000 of the proceeds from the sale of their main residence as a downsizing to superannuation contribution for either their spouse or themselves. The contribution amount cannot be more than the total proceeds of the sale of your home. However, in order for this to be eligible as a downsizer contribution, the recipient needs to meet certain eligibility requirements.
WHO IS ELIGIBLE FOR DOWNSIZE CONTRIBUTIONS?
You will only be eligible to make a downsizer contribution if you can answer yes to all the requirements listed below:
- You are at least 65 years of age or older at the time you decide to make a downsizer contribution. Remember there is no upper age limit.
- The amount you are contributing is only from the proceeds of selling your home where the contract of sale for the property was exchanged on or after 1 July 2018. Sale contracts dated before the 1st of July 2018 will not be eligible.
- Your home has been owned by you or your spouse for at least ten years or more before the sale
- Your home is in Australia and is not a houseboat, caravan, or another form of 'mobile home'
- The proceeds (capital loss or gain) from the sale of the home are either partially exempt or exempt from capital gains tax under the main residence exemption. Or, the proceeds would be entitled to this type of exemption if the home was a capital gains tax, rather than a pre-capital gains tax asset (acquired before the 20th of September 1985).
- You are required to treat any and all contributions specifically as a downsizer contribution, and let your superannuation provider know about downsizing to superannuation in the approved form, either before or at the time you make your downsizer contribution.
- You must ensure you make the downsizer contribution within a 90 day period of receiving the proceeds of the sale, which typically is the date of settlement
- You haven't made a downsizer contribution previously to your super from the sale of a different home.
There is some flexibility over the 10-year ownership condition of the requirements and it covers situations where:
- One member of a couple has not been shown on the title of the property sold - A property was used for both main place of residence and business use
- A person has been in possession of a property for less than ten years as a result of a former residence compulsorily acquired. A person will be eligible to make a downsizer contribution in the following situations
- If the property in question was owned by one member of a couple for at least the ten year period. It doesn't matter about the length of time the couple is married.
- In the circumstance that the spouse who owned the property for longer than ten years dies, then the surviving spouse can make DSC, even if they have not been married for the required ten year period.
- The ten-year requirement can also be cleared by those whose home has been acquired compulsorily and then the new home is sold within the ten year period. Therefore, if you satisfy all the necessary points above, then you will most likely be eligible to make a downsizer contribution.
When can you claim it?
There has been confusion over the exact period in which you can claim downsizer contributions. The official date in which the claim comes into force is on the 1st of July and it's important to recognise that if the contract of sale of the property is not after that date, then the contribution is not possible.
Before you decide to make a downsizer contribution, it's important that you consider the eligibility requirements. Contact your financial planner or super fund directly to ensure they accept downsizer contributions.
If you have any questions or you're not sure where to start, we're here to help make your the process as smooth as possible for you.