Are you or are they considering selling the family home?
If you answer ‘yes’ to the above two questions, you may consider taking advantage of making a ‘Downsizer Contribution’ to your superannuation fund.
What is the downsizer contribution?
The downsizer contribution allows you and your spouse to make an after-tax contribution to your superannuation fund if you sell or downsize your home, subject to certain conditions outlined below.
What are the benefits of the downsizer contribution?
The short answer is tax savings. For example, if you have surplus funds from the sale of your home, say $600,000, the income or capital gains derived from the future earnings on these surplus funds will be taxed at your marginal rate.
If they are contributed to your superannuation fund, those same investments will be taxed at a maximum of 15%, but if you are retired and in the pension stage NIL%.
This tax saving can be significant when you extrapolate the potential tax savings over the term of your remaining life.
Also, it is better to wait to downsize your home until after 1 July 2022 if you are aged between 60 and 65 y.o.
Some of the criteria to be eligible to make the downsizer contribution.
- You have reached the eligibility age, which is currently age 65, but from 1 July 2022, this will reduce to age 60.
- You have not previously made a downsizer contribution to a superannuation fund from the sale of another home or the part sale of your home.
- The home must be in Australia and owned by you or your spouse for at least ten years, and the proceeds from the sale must be exempt or partially exempt from Capital Gains Tax (C.G.T.)
So if you are in your 50s or 60s and are considering downsizing, you may consider waiting until you and your spouse reach age 60, and have owned your home for at least ten years, to reap the tax benefits of the downsizers contribution.
For more details on the eligibility of downsizers contribution, please feel free to contact Peter Quinn by submitting an enquiry or calling us on +61 2 9580 9166 to book an obligation free appointment.
The information in this document does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. It is important that your personal circumstances are taken into account before making any financial decision and it is recommended that you seek assistance from your financial adviser.