Contributing the sale of your home into Superannuation

In the May 2017 budget, the Government announced that from 1 July 2018, older Australians could contribute up $300,000 each (per couple) from the sale of their family home into their Superannuation Fund. This measure is to encourage older people to downsize from family homes that no longer meet their needs, while also freeing up these homes to younger families starting out.

 

Do you pass the test to contribute the sale of your home into your Superannuation?

Currently the rules state that if you are over 65 years of age, then you cannot contribute into Superannuation unless you meet the “work test” (meaning you have worked at least 40 hours in a 30-day period and been paid for this service). If you do meet the work test, then you can only contribute up to $100,000 in after-tax contributions, and $25,000 in before-tax contributions.

Another layer of complexity to this is that even if you are over 65 in age, and you do meet the work test, you may not be able to contribute after-tax contributions based on the new $1.6 million balance threshold. If your superannuation balance is over $1.6 million (not just in pension) then you are currently not able to contribute any after-tax money into Superannuation.

From 1 July 2018, there is now a possibility to be aged over 65, be over the $1.6 million balance threshold and contribute up to $300,000 into Superannuation. If you are thinking of downsizing, by selling your family home which has been your primary residence for a minimum of 10 years, then you can take advantage of this new measure from the Government and contribute the proceeds up to $300,000 each ($600,000 per couple) into Superannuation.

 

What to consider when contributing the sale of your home into your superannuation

With every good measure implemented by the Government, there are also some other factors to consider which may impact your situation.

Keep in mind the 90-day timeframe that the new downsizing law specifies. If you wish to take advantage of this new measure you must make the downsizing contribution within 90 days of receiving the sale proceeds, before you are prohibited from making a downsizing contribution.

If you currently have $1.6 million in transfer balance cap (this relates to your pension balance) then the superannuation contribution made of up to $300,000 cannot be added to this balance. Meaning you will have a pension balance of $1.6 million and the $300,000 will become part of your member balance, however cannot be converted to a pension balance. Keep this in mind if you were trying to keep your Superannuation Fund 100% tax free with the $1.6million transfer balance cap, as this will impact that strategy.

 

Age pension benefits when contributing into your superannuation

Another important factor to consider is the impact of the above on Age Pension benefits. Keeping in mind that the Age Pension entitlements depend on the value of your assets (asset test) and the income you receive (income test). Your home is not counted under the assets test, however if you sell your home, the proceeds will be exempt for up to 12 months, if you are planning to use the proceeds to buy another home. The proceeds will however be deemed under the income test.

If you would like to discuss this strategy further or have any questions, please contact us to make a time to talk to one of our Advisers. We would love to take the time to discuss your needs.

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SMSF Accountant at Superfund Partners Specialties:Self Managed Superannuation Business Compliance