Important changes are coming to the law on superannuation from 1 July 2018 that could be of great interest for people of retirement age.
From July 1 if you sell your home and meet the eligibility requirements, such as having passed your 65th birthday, you can choose to make a contribution into your superannuation of up to $300,000 from the sale.
The change in the legislation could offer a major incentive for people who have either retired or are approaching retirement to put more money into their superannuation.
Change will enable retirees to top up their super balance
The change, which is contained in Schedule 2 of the Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 1) Act 2017, means that people who could not maximise their super contributions during their working life will be able to increase their super balance after they have finished work and sell their home.
Under this change, if a couple sell the family home, they can each put $300,000 from the proceeds of the sale into their superannuation and there would be tax advantages from making this new form of super contribution.
The contributions from selling the home will not count towards the concessional or non-concessional contribution caps. Therefore, they can be in addition to any other contributions you are eligible to make. The downsizer contribution can still be made if you have a total super balance greater than $1.6 million.
Conditions to be met to qualify for superannuation contribution from selling your house
However, there are certain conditions people have to meet before than can qualify for the right to make the super contribution from the proceeds of selling the home.
You need to have owned the home that is sold for the previous ten or more years and it needs to have been the principal residence.
The aim of the government's change is to free up family sized homes by encouraging people aged over 65 – the so-called "empty nesters" – to sell their large family home and move to a smaller home, probably outside the big cities.
"Downsizing" does not mean you have to buy another home
Surprisingly, even though the government classified it as a superannuation contribution as a result of "downsizing", there is no definition in the legislation of what this term actually means.
You don't have to buy a smaller home or even buy a home at all. To qualify, the home you sell can't be a caravan, houseboat or mobile home. It has to be a main residence and exempt from capital gains tax. You can only do it once and you have to put the money into super within 90 days of receiving the proceeds of the sale.
Get professional advice to understand the implications for your circumstances
However, there are other provisions in the change in the law regarding this so-called "downsizer contribution" that may have an unforeseen impact on your financial planning. There may also be implications for tax and your inheritance estate planning.
It would be wise to get financial planning advice from someone experienced in business law to determine whether it is the best use of your money in your particular circumstances before jumping in to take up this offer from the government. What's right for some people may not be right for you.Tony Mitchell
Stacks Law Firm
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.