In response to mounting pressure on housing affordability in Australia, the Government has looked to incentivise older Australians considering downsizing, to take the leap.
Previously, selling the family home may have resulted in adverse tax impacts, however the asset rich and cash poor now have an option to make a contribution to their superannuation from the proceeds of selling their primary residence.
The new downsizing legislation allows eligible homeowners aged 65 or over to each make a “downsizer contribution” into their superannuation of up to $300,000. The contribution amount cannot be greater than the total proceeds of the sale, which means that if the residence sells for $500,000, then a couple’s combined contributions could only total up to $500,000. Whereas, if the same couple sells their home for $800,000, each spouse can make a contribution of up to $300,000 (ie $600,000 into superannuation).
Importantly, the residence must have been held for 10 years or more to qualify and the contract of sale was exchanged on or after 1 July 2018 (next financial year).
The new rules can provide a timely boost to superannuation accounts for many Australians and allows them to access the low or no tax rates available within the superannuation system. In turn, it is hoped that more housing will be freed up for the younger generations.
If you are thinking of downsizing in the near future we recommend speaking with your adviser before entering into a contract of sale.