The downsizing contribution legislation allows people over the age of sixty five to contribute part of the proceeds from the sale of their house into a superannuation fund, without affecting their non-concessional contribution caps.
Key Points
You must be over 65 years old when you make the contribution.
You must have owned the house for over 10 years.
You must qualify for the main residence CGT concession.
The maximum contribution is the lesser of $300,000 or the proceeds from the sale.
The sale contract must be entered into on or after 1 July 2018.
No work test is required to make the contribution.
In Detail
From 1 July 2017 the total amount you could contribute to your superannuation fund reduced from $180,000 to $100,000. This made it harder to get surplus cash into a superannuation fund and therefore access the concessional 15% tax environment.
The downsizing superannuation contribution rules came into affect for property sale contracts on or after 1 July 2018. These rules allow people over the age of sixty five who have owned their home for over ten years to make an additional contribution of up to $300,000. This contribution does not count to the other contribution caps. The property must have been used as the main residence for part of the ownership period and the contribution must be made within ninety days of disposal.
Both spouses are entitled to contribute the lesser of $300,000 or half the proceeds from the sale, regardless of their ownership percentage.
The legislation is quite flexible with regards to the ten year ownership period and allows the land to be vacant for part of the ten years. It also allows for a replacement a substitute property to be treated as the main residence if the former house was compulsorily acquire or destroyed.
Case Study
Huxley and Marina are both 67 years of age. The have owned a four bedroom home in Doodlakine for fifteen years. They have decided to sell their house and travel around Australia in a caravan for a couple of years. The property is worth $350,000 and they have $500,000 of cash in their personal bank accounts.
Huxley has an existing superannuation balance of $800,000, however Marina only has $50,000 so they would like to balance this as much as possible. They would like to contribute as much as possible into their self managed super fund (SMSF) to benefit from the low tax rates.
Huxley and Marina can contribute $100,000 each into their SMSF assuming they meet the work test. Marina can contribute $300,000 from the sale of the house and Huxley can contribute $50,000 under the new downsizing contribution. Therefore, they are able to get $550,000 into their SMSF, increasing the total balance of the fund to $1,400,000.
References
Law Companion Ruling LCR 2018/9
Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 1) Act 2017.
Superannuation Industry (Supervision) Regulations 1994
Income Tax Assessment Act 1997
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