When it comes time to downsize in the Sutherland Shire, you have a number of decisions to make, not least of which is what to do with the proceeds of your sale. One option might be to deposit the proceeds into your superannuation account.
How much can you put into super?
According to the ATO website, if you sold your home after 1 July 2018, you can deposit $300,000 per person into your superannuation account. The Australian Government introduced this measure in order to encourage older people to become more self-sufficient, to move to a home that suits their needs better, and to free up larger homes for young families wanting to upgrade from smaller homes.
Are you eligible to contribute home sale proceeds to your super?
The government has strict eligibility criteria. Under the rules that came into effect on 1 July 2018, you are eligible to make a downsizer contribution to super if:
- You are 65 years old or older at the time you make a downsizer contribution.
- Your contribution amount is from the proceeds of selling your home.
- You have owned your home for 10 years or more before the sale.
- Your home is in Australia and is not a caravan, houseboat or other mobile home.
- You are exempt from paying capital gains tax as the property you are selling is your principal residence.
- This is the first time you have made a downsizer contribution into your super from the sale of a home.
What else do you need to do?
To make a contribution, you’ll need to ensure:
– You provide your super fund with the Downsizer contribution into super form either before or at the time of making your downsizer contribution.
– Your super fund accepts downsizer contributions.
How long do you have to deposit the funds?
Generally, you need to deposit the proceeds of your home sale into your super account within 90 days of receiving the monies. However, you might be able to apply for an extension if circumstances outside your control mean you are unable to make the deposit within 90 days.
You might not need to make the entire deposit in one hit; under the rules, you are allowed to make more than one deposit as long as all deposits are within 90 days.
How will this affect your superannuation balance and pension?
How this affects your super and your pension will depend on how much you currently hold in your superannuation account. The ATO has a limit of $1.6 million. If your contribution puts you above this limit, then you can’t add $300,000 to this amount. Your pension balance would be $1.6 million and any additional contributions become part of your member balance. This is important to note as any additional contributions could affect any strategy you have in place to keep your superannuation fund 100% tax free.
Deeming and your Age Pension
When you sell your home, your pension entitlements depend on the value of your assets. The proceeds of your home sale are exempt for up to 12 months if you’re planning to buy another home. However, the proceeds are counted towards your deemed income.
An important consideration is that contributions made to super form the sale of your home are not tax deductible.
If you’re considering downsizing and making contributions to your superannuation account, then we recommend that you seek expert financial advice to make sure that your deposit doesn’t have an adverse effect on any entitlements you might have.
Can we help with advice on downsizing?
Having navigated the home sale and downsizing process not only for our real estate clients but also for members of our own family, it’s an area in which we’ve amassed a wealth of knowledge. So don’t hesitate to seek out our help – no obligations.