Just how can you take advantage of the new legislation now available to top up your super fund if you are over 65

Downsizer Contributions

This measure was introduced by the Liberal/National government as part of a broader package to improve housing affordability. It is a new super measure and has become law as of 13 December 2017.

The law allows an individual aged 65 or over to use the proceeds from the sale of one main residence to make a ‘downsizer contribution’ of up to $300,00 (or $600,000 if a couple) into super. In order to be eligible, the contract for sale must be entered into on or after 1 July 2018.

There are a number of other qualifying conditions however, if they are met then the contribution can have some strategic advantages. As an example, Julie and Paul are married and aged 62 and 64 respectively. Julie bought a home in 1990 for $250,000 and lived in it as her principal place of residence. She lived there for five years, married and moved into Paul’s principal place of residence in 1995. Julie’s home was valued at $300,000 in 1995 and has been rented out as an investment property in the ensuing years.

In 2021 Julie is still working and has turned 65 and Paul has retired. Julie sells the home for $800,000 and wants to make super contributions under the ‘downsizer contribution’ law. They can make the contribution as they satisfy the eligibility conditions and do so for $600,000. This is advantageous as Paul is over 65 and retired and cannot make non-concessional contributions while Julie could possibly make a non-concessional contribution depending on her superannuation balance.

Julie has a capital gain on her sale, the cost base being the value when she married of $300,000. Therefore she has a capital gain of $500,000 that she would be able to apply the 50% general discount to and pay tax on the net gain of $250,000. In the year Julie sells she may be able to use personal deductible contributions from the current year and possibly past years if her total super balance is below $500,000, to manage the capital gain.

Under the new law, there is no requirement to either downsize or buy another home. So if you are purchasing a new property but have cash outside of super you could take advantage of the contribution or alternatively if you don’t have cash outside of super you could use a recontribution strategy to increase the tax-free component for estate planning purposes. There is no limit to access the funds as you must be over 65 to contribute. Income for the Commonwealth Seniors Health Card (CSHC) is based on adjusted taxable income plus deemed income on non-grandfathered account based pensions. Any amount in super in accumulation phase is not subject to deeming. It may be advantageous to keep the contribution in accumulation phase to avoid deeming to retain the CSHC albeit the tax is 15% on the earnings.

Although the downsizer contribution is not subject to the total super balance test it will increase the total super balance that could then affect future non-concessional contributions or catch up concessional contributions. The downsizer contribution is not excluded from the pension transfer balance cap but in accumulation phase may allow you to retain or become eligible for the CSHC. There is no Centrelink means test exemption though. The sale will count towards the Age Pension assets test and will be deemed under the income test for any individual over the qualifying Age Pension age.

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David Hansen