Ensure your clients are aware of home downsizer opportunities

The Downsizer Measure, which started on 1 July 2018, allows older Australians choosing to sell their home and downsize, or move from homes that no longer meet their needs, to contribute up to $300,000 of proceeds from the sale into super. The term downsizer is misleading as it indicates that you must downsize your principal place of residence to take advantage of the opportunity which is incorrect. Your clients need to meet the eligibility criteria which is detailed further below in this article.

We have provided advice and guidance to clients over the past 12 months in relation to making downsizer contributions to super which has proven to be a great strategy to boost savings in super without the need to satisfy normal superannuation contribution criteria (including the work and total super balance tests). There are also strategies open to clients seeking to utilise the measure to reduce the death tax sitting in their SMSFs.

The ATO has recently released some statistics on the home downsizer contributions as follows:

  • 4,246 people have used the measure
  • 55% of contributions have been made by females and 45% by males
  • people from every state and territory have made a downsizer contribution with the top three states being: NSW (31%), VIC (26%) and QLD (24%).

These contributions will not count towards the concessional or non-concessional contribution caps and the individual making the contribution will not need to meet the existing maximum age, work or $1.6m balance tests for contributing to super.

Eligibility criteria

  • Member/s must be aged 65 or over from 1 July 2018
  • Must have owned home for at least 10 years and it meets the test for a ‘main residence’ exemption (or partial exemption) under CGT rules (although members do not have to be currently living in it)
  • The contract for sale must be entered into on or after 1 July 2018 and the contribution must be made within 90 days of the sale date

The downsizer contribution can only be made once.

Benefits

  • Boost savings in superannuation
  • It is important to note that members are not required to make a subsequent home purchase or purchase a new residence of a smaller value. Members can move into any living situation suitable for them after the sale
  • If funds are required after the downsizer contribution is made, lump sum withdrawals can be made which are received tax-free
  • If applicable, the members spouse can also make a downsizer contribution, increasing the potential contribution to a maximum of $600,000 combined (as long as this doesn’t exceed the home’s sale price)

Multiple downsizer contributions from the proceeds of a single sale can be made, but the total of all contributions must not exceed $300,000 or the total proceeds of the sale less any other downsizer contributions that have been made by the members spouse. All contributions still are required to be made within 90 days of receiving the funds which is usually from the date of settlement, unless the they have been granted an extension.

We recommend that you flag potential clients and make them aware this opportunity. Especially due to one of requirements to meet eligibility criteria, is ownership of the residence for 10 years. Please contact your Partners Wealth Group advisor today to see how we can assist.