Will you downsize your home?

When the kids move out or the yard gets too big to manage, your thoughts might turn to downsizing your family home for a townhouse or apartment. A lock up and leave lifestyle is also appealing to many in retirement. Now there is added incentive for you to sell the family home. This in the form of a boost to your retirement funds using a new ‘downsizing super contributions’ rule.

Contribute the profits from your property sale into super

From 1 July 2018, people aged 65 and over, who have sold their principal/main residence, may be able to contribute the sales proceeds to super.

If you are eligible, you can contribute up to $300,000 (per person) into the tax advantaged environment of super. And importantly, there is no requirement that the person who has sold an eligible property actually ‘downsizes’. So for example, you may be moving into an aged care facility, retirement village, rental arrangement or moving into a property that you already own.

How the downsizing super contribution works

Jenny and Paul (both aged 65+) have lived in the family home for more than 20 years. They do not have a mortgage on their home. Jenny and Paul have now retired and are looking at buying a townhouse closer to their daughter. They sell their home for $700,000 at auction. They are able to contribute up to $600,000 into super ($300,000 each) using the downsizing super contribution rules.

The fine print

There are, of course, rules and restrictions including:

• The contract to sell a property must be entered into after 1 July 2018 and the property must have been owned for at least 10 years prior to disposal
• The property must be the person’s main residence or eligible in part for the main residence capital gains tax exemption
• The contribution is made within 90 days of receiving the sales proceeds and after the day the person reaches 65
• An election form must accompany the contribution
• You are not able to claim a tax deduction for the downsizing contribution
• There are some Centrelink implications

With all new strategies, please talk to the Milestone Financial Team about whether the downsizing super contribution rules will help you achieve your goals.