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How downsizing your home can help top up your super

Downsizing your home and putting the profits into super

If retirement is on the horizon and you’re thinking about selling your home, you may be able to put some of the money you receive into your superannuation.

The new downsizer super contribution measure is an excellent opportunity if you’re 65 or over and are looking to sell an eligible property. If you’re eligible for the scheme, you can use the proceeds from the sale of your home as a one off “downsizer contribution” to boost your super, up to $300,000 as an individual or $600,000 as a couple.

Unlike the non-concessional contributions to your super, the good news is that you don’t need to be working and there are no age limits to making downsizer contributions. Also, the total super balance test of $1.6 million and the $100,000 non-concessional contributions cap restrictions don’t apply which makes it a great option if you want to contribute more to super and are currently ineligible because of these restrictions.

What types of properties are eligible?

The property being sold must be located in Australia. It doesn’t even need to be your current home — for example, an investment property up for sale is also eligible, as long as you, or your partner have owned it for more than 10 years and lived in it at some point in your life. An investment property that neither of you have lived in however is not eligible.

But, the property does not need to be owned by both members of a couple for both of you to make a contribution of up to $300,000 to your super. Unfortunately, the sale proceeds from a houseboat, caravan or mobile home cannot be used.

Here's an example of how the scheme works:

Tom (78) and Hazel (75) are retired. They have a small super balance of $50,000 and $20,000 in their bank account. They have a four bedroom house in the country valued at $700,000.

Now that they’re getting older they find it harder to maintain their large property and are considering downsizing to a small townhouse closer to the town centre where they can be closer to their family and the town services.

They’ve also been drawing down on their super for the last 10 years and their super balance is depleting rapidly. By downsizing, they can release money from their property so they can continue to fund their retirement. 

Tom and Hazel go ahead and sell their house for $700,000 and buy a townhouse for $500,000, leaving them a balance of $200,000.

They have the option of investing their $200,000 in their super fund as a one off ‘downsizer contribution’, and can then take advantage of the tax savings in super, including nil tax on earnings up to $1.6m, when drawing down on their super as an account-based pension.

Benefits: the benefits of investing their money in the super environment are not only the potential tax savings on investment earnings but it also allows them to simplify their finances by having one core investment – in super.

Notes: In this scenario, Tom and Hazel keep the full age pension as they remain under the age pension assets test. If your house is currently exempt from the assets test and you sell it, the balance would then go towards the assets test which may affect the amount you receive as your age pension.

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