A Bill introduced into Parliament last week will reduce the eligible age for making a downsizer contribution to superannuation from 60 years to 55, likely to take affect from 1 October 2022.
This is a rapid change on the heels of the age threshold already having been reduced from 65 years to 60 just last month, from 1 July 2022.
Background
Individuals can choose to make downsizer contributions to superannuation of up to $300,000 ($600,000 for a couple) from the proceeds of selling their family home. The contributions do not count towards the non-deductible contribution caps ($110,000 per year, or $330,000 under the three-year “bring forward” rule). For example, an individual could make a downsizer contribution, and this would have no impact on making further non-deductible contributions under the abovementioned caps. Downsizer contributions will ultimately count towards your transfer balance cap (currently $1.7 million per person), which is the limit that can be used to fund a tax-exempt superannuation pension.
To be eligible to make a downsizer contribution:
- Currently, the individual must be 60 years or older at the time of making the contribution
- The contribution must be sourced from the proceeds of sale of your family home (there are some qualifying rules around this)
- Must have owned your home for at least 10 years
- The contribution must be made generally within 90 days of settlement of the sale (ie, it’s workable if you are 59 at the time of settlement, but your birthday is within the following 90 days)
- You must notify your superannuation fund that the contribution is a downsizer contribution
- You have not previously made a downsizer contribution (ie, you get to do this only once in your life)
The typical candidates for making downsizer contributions are empty-nesters who no longer need the large family home. Lifestyle and retirement villages are an increasingly popular choice of living arrangement for older (and not so older) Australians. The wider range of options available beyond simply moving to a smaller house complements this policy, and it encourages the freeing up of housing availability in the established market.
Now from age 55
The previous government announced a policy to reduce the eligibility age from 60 years to 55 during the election campaign, and the then-Opposition supported it. Accordingly, no matter the election outcome, the change was going to be put to Parliament. And with bi-partisan support, it is expected that Parliament will pass the Bill and it be assented in time for the change to take effect from 1 October 2022.
The change will widen retirement planning opportunities for many people. It should be noted though, that the contributions are locked away in superannuation until the individual’s preservation age. For those born before 1 July 1960, preservation age is 55 years. For those born on or after 1 July 1964, preservation age is 60 years. And there is a sliding scale of preservation age between 55 and 60 years for those born in between.
In your 40s now, looking ahead…
Many parents in their forties may well be living in the house that will see them through to empty-nesterhood. However, if you are contemplating moving at some point before reaching the eligibility age, bear mind that that will mean re-starting the 10-year qualifying period. That can work out well in cases of successive downsizing. In that situation, superannuation contributions sourced from a downsize can be made under the abovementioned non-deductible contribution caps, leaving open the downsizer option for a subsequent downsize 10 or more years later.
Talk to your trusted Nexia advisor about ensuring you have a retirement and wealth management strategy that is right for you.
