How to claim the federal government downsizing incentive
From 1 July 2018, people aged 65 and over have 300,000 more reasons to downsize their home under a new incentive introduced by the Federal Government. The move gives seniors more flexibility to put up to $300,000 from the sale of their home into superannuation.
National Manager of Wealth Management at Morgans Financial Limited, Terri Bradford, answers key questions about the new super sweetener.
Why did the Federal Government introduce this incentive?
It’s part of a wider strategy to address Australia’s housing affordability crisis, and it aims to free up larger homes for younger, growing families.
Until now, being unable to put the proceeds of selling their family home into super has discouraged some seniors from downsizing. This means many larger family homes remain occupied by only singles or couples. This incentive encourages more over 65s to downsize which, in turn, frees up more homes for younger families starting out.
Importantly, it also allows more people aged 65 and over to move to housing better suited to their needs in retirement.
How does the downsizing incentive work?
From 1 July 2018, people aged 65 and over can make a personal contribution into their superannuation of up to $300,000 using proceeds from the sale of their family home, which has been owned for the past 10 years. This means that $600,000 per couple can be contributed to superannuation.
These new contributions are exempt from existing work and age tests, and are over and above any other voluntary contributions the person is currently able to make.
This is a once-only application and cannot be used for any future sale of another main residence. The contributions can only ever be made from the proceeds of one sale of a dwelling.
The contribution must be paid into superannuation within 90 days of finalisation of the home’s sale.
Individuals can make contributions to different superannuation providers if they wish, as long as the total contribution is no more than $300,000.
If you are not a fully self-funded retiree, the incentive may impact your age pension entitlements.
As you probably know, the full value of a family home is exempt from both the Income and Assets tests for social security purposes. However, any remaining sale proceeds (after your new home is purchased) will be assessable regardless of whether the funds are contributed into super or not.
Therefore, the sale of the existing family home could result in an individual, or couple, losing some of or all their age pension benefits.
We recommend that age pensioners exercise caution before taking any action on this strategy.
Be aware that your superannuation will still be subject to the $1.6 million pension transfer balance cap (which took effect on 1 July 2017).
And obviously, if you sell your family home, you will need somewhere else to live. So, you need to work out how much to put aside for that next step.
It’s a good idea to get some independent professional advice on how to navigate all aspects of this incentive to your best advantage.
Morgans provide professional financial planning advice in areas including superannuation, retirement planning, tax planning and wealth creation. We can help you assess your next move to ensure you are comfortable in the future, and we offer a free first appointment.