The kids have finally flown the coop and now you’re rattling around in a big empty home. What do you do with all those spare rooms? Fill them with junk? Rent them out on Airbnb? Could you even have too much house and not enough super?
Well, now you have a chance to change that!
Thanks to a new government initiative that’s meant to free up the housing market for younger buyers, if you’re 65 or over you can sell your house and put the money into super.
It’s called the Reducing barriers to downsizing scheme and it started on 1 July 2018.
Downsizing your house
First up, you don’t actually need to be downsizing because there’s nothing in the rules that says you have to buy a smaller place (the tax office won’t be sending someone out with a tape measure). You can move to the country and buy a bigger place if you want, or even rent for a while.
There are a few boxes you have to tick before you can take advantage of the scheme.
You need to have been living in your home for at least ten years. You don’t qualify if you’ve been living in a boat, caravan or mobile home either. And your home has to be in Australia (so you can’t flog off your condo in Nice and use the proceeds to make a super contribution).
Oh, and you need to have sold your home after 1 July 2018. If you signed a contract before then, you won’t qualify, even if the property settles after that date.
Upsize your super
Most people who are retired and older than 65 aren’t able to put extra funds into super. That’s where this scheme comes in handy. You can put up to $300,000 from the sale of your home into super – if you’re a couple, that’s $300,000 each. You could get a combined $600,000 into super and start a tax-free pension.
Again, there are restrictions. You can’t contribute more than the sale price, or for a couple, their individual share of the sale price.
And in most cases, you’ve got just 90 days from settlement to make the contribution.
Careful with your pension
You’ll need to remember that for Age Pension purposes, your home isn’t counted under the assets test. If you sell it and make a downsizer contribution, the amount you pay into super is considered an asset.
That means upsizing your super could reduce, or even cancel your Age Pension. Check with the government’s Financial Information Service before you act.
Don’t rush into it
If you’re considering taking advantage of this measure, we strongly encourage you to seek expert advice. The rules around the measure are complex and it won’t work in everyone’s favour. For example, downsizing contributions will be counted for the assets and income tests used to determine eligibility for the Age Pension and Department of Veteran Affairs benefits, and the $1.6 million transfer balance cap will still apply to the amount which can be transferred to a pension account.
After advice on downsizing?
We can help. Simply call us on 1800 005 166 or contact us to arrange an appointment.