The great downsize.
It’s now a strategic retirement planning move for many Australians entering, or progressing through their retirement.
For many Australians, their super balances may not quite be where they need to be to afford the lifestyle they desire in retirement.
Running out of money or struggling on the pension is a real fear for many in retirement – when their time should be spent living their best lives.
For others, downsizing to a smaller home has always been on the cards as their intended retirement plan.
And with the value held in Australian housing, why not?
Added to that is the introduction of the federal government ‘downsizer’ measure introduced back in 2018-19 tax year, giving even greater incentive for older Australians to up and sell their Principal Place of Residence (PPOR) and boost their super balance.
The ‘downsizer measure’
With the introduction of the downsizer measure, more and more Australians are taking advantage of the option to top up their super balances up to $300,000.
The downsizer allows those aged 55 and over to contribute up to $300,000 from the proceeds of the sale of their PPOR to their super fund.
Couples can even contribute up to $300,000 each. Do note, the contribution cannot be greater than the total proceeds to the sale. That means no pitching in funds from other sources.
Here’s a couple of examples:
- Contributing maximum amount: John and Carol sell their home for $800,000 and both names are on the title. John and Carol can both contribute up to $300,000 each.
- Contributions not exceeding sale proceeds: Jim and Jane sell their home for $400,000 and both names are on the title. Jim and Jane can contribute $200,000 each or split it – Jim contributes $300,000 and Jane $100,000.
- When property is only owned by one spouse: Alan and Alice sell their home for $600,000
- but only Alan is on the title. Alice and Alan meet all the other criteria so both can contribute up to $300,000 each.
The benefits of the downsizer
Any income earned on the proceeds of the sale, once in super, is tax-free after the age of 60 once in the pension phase.
That’s a huge boost to your super and the investment earnings ticking away tax-free.
So much so that in the 2023-24 tax year, approximately 13,000 individuals collectively added $3.38 billion to their super as part of the downsizer measure.
That’s a lot of retired homeowners taking advantage of the value gained in their property and using it to their tax advantage.
Am I eligible for the downsizer?
Now as always, eligibility criteria do apply – but they are generally very straightforward.
Namely:
- You are 55 years or older
- Have owned your home 10 years before the sale
- Your home is in Australia and not a caravan/boat/mobile home
- Your home is not an investment and liable for Capital Gains Tax
- You make the downsizer contribution no more than 90 days after the sale
- You have not previously made a downsizer contribution
The final word
The downsized measure is yet another option that could make up the balance of your retirement planning. Having a clear and well-planned retirement strategy can not only make a world of difference for your financial stability, but for your peace of mind.
If you reaching retirement planning phase and are considering making a home downsizer contribution to super, get in touch with our team to discuss your options.
