Making downsizer contributions into super

Thinking about downsizing your home for retirement? It may be a great way to boost your super.

If you're thinking about downsizing before retirement, you might be considering a smaller home that's easier to maintain or a more manageable plot of land that requires less upkeep. Or, you may be looking at a retirement village or total sea change.

Whatever your circumstances, downsizing for retirement not only provides a change of living situation and lifestyle, but it may offer a great opportunity to increase your superannuation. If you think you might be short on your super, making a downsizer superannuation contribution could be a viable strategy for increasing your balance.

Downsizing your home for retirement

Before you consider downsizing, there are several things to keep in mind.

Firstly, think about the benefits of downsizing your home. You may consider a location that's more convenient and closer to shops, services and transport. If you opt for a retirement village, you'll have the convenience of on-site amenities. You may also be able to use the money from the sale of your home to put into your super as a downsizer contribution.

Additionally there are practical and emotional considerations. If you're moving into a more modest home, you'll need to think about whether you can adapt to a smaller space and if you'll have space for all your belongings. You might also be looking at a location that's further away from friends and family in your area, meaning the potential for more travel time.

What's more, moving from your family home can be an emotional experience – both for you and your children. Reflect on whether you're truly ready to make the move, and prepare for the inevitable adjustment period.

There are a few more impacts to consider when downsizing – we'll go into these later.

Downsizing super contributions

If you decide to sell your home ahead of retirement, you may be able to access the downsizer contribution measure. This was introduced by the Australian Government in July 2018 to give Australians approaching retirement the chance to boost their superannuation.

If you're aged 55 and over and meet the eligibility requirements, you can contribute up to $300,000 from the sale of your home to your super. The property you sell will need to be your main home, and you can only make a downsizer contribution from the sale of one home. However, you're not required to purchase another home and the downsizer contribution won't be counted towards your contributions caps.

You can make downsizer super contributions regardless of your super balance – even if your balance exceeds $1.7 million. If you sell your home with your spouse, you can contribute up to $300,000 each.

Just keep in mind that there are some downsizing super rules. You can't make a downsizer contribution that's greater than the total proceeds you received from selling your home. So, if you make $200,000 through the sale, you can only contribute a maximum of $200,000. While downsizer contributions aren't tax-deductible, they are 'non-concessional' and not subject to contributions tax when they are deposited in the fund.

Am I eligible for the downsizer measure?

You'll need to meet all of the following eligibility requirements in order to make downsizing super contributions:

• You're aged 55 or older when you make a downsizer contribution
• Your contribution comes from the proceeds of selling your home under a contract of sale that was exchanged on or after 1 July 2018
• You or your spouse owned the home for 10 years or more before selling it
• Your home is located in Australia and is not a houseboat, caravan or any other type of mobile home
• The home's proceeds are fully or partially exempt from capital gains tax (CGT) under the main residence exemption, or they would be exempt if the home was a CGT rather than pre-CGT asset (meaning it was bought before 20 September 1985)
• You make a downsizer contribution within 90 days of collecting the proceeds of the sale
• You haven't made a downsizer contribution before
• You provide your super fund with the Downsizer contribution into super form (NAT 75073) either before or at the time of making your downsizer contribution.

There are a couple of things to take note of when it comes to eligibility. Firstly, if your spouse sold the home and you didn't have any ownership interest (or vice versa), you may still be able to make a downsizer contribution as long as you meet all the other eligibility criteria. Secondly, you don't need to meet the current contribution rules around maximum age or work test.

How to make a downsizer contribution

Once you've checked that you're eligible to make a downsizer contribution, the process is pretty straightforward.

If you have an ANZ Smart Choice Super account, you simply need to fill out the Downsizer contribution into super form provided by the ATO and supply it to us before or at the point of making your contribution. That way we'll know that the money you're contributing is a downsizer contribution and not a personal one that counts towards your contributions cap.

If you're making contributions for both you and your spouse, you'll need to provide a completed form for each contribution.

Just remember to complete the process within 90 days of receiving the proceeds from your sale (which is usually the date of settlement). A good time to consider if making a downsizer contribution is right for you, is while you are advertising your house for sale. 

Why downsizing into retirement might not be right for you

While downsizing your home can offer a refreshing change in lifestyle, a home that's easier to maintain and a decent boost to your super, it may not always be the best option.

Depending on the housing market, you may not be able to sell your home for your ideal price. Plus, you'll need to take into account all the fees associated with selling your home such as the commission charged by the real estate agent, pest and building inspection costs for your new home, and the cost of moving your belongings from one home to another. This could end up being thousands of dollars.

Selling your home can also impact your Age Pension. Your family home and the two hectares of land surrounding it aren't counted in Centrelink's asset and income tests. But, once you reach the Age pension age of 65, your superannuation is. That means that making a downsizer contribution can reduce your age pension benefits, as your superannuation becomes a bigger asset. The proceeds of the sale are exempt from the assets test for the first 12 months, granted you're planning on buying another home. However, they will be looked at under the income test. This could impact you, if you are not looking to purchase a new home.

Chatting to a qualified financial planner can help you decide whether downsizing your home is a smart financial move.

Alternatives to downsizing

If you decide to stay put, there are a few ways you can make the most of your existing home ahead of retirement.

Rent out your home

To help supplement your income, you could opt to rent out a single room in your home or even convert your home to dual occupancy (meaning you live in one half and rent or sell the other).

You could even rent out your garage or parking spot. Just note that renting your home may affect your Age Pension, as it effectively becomes an income stream, and require you to include additional income on your income tax return. It may also change how CGT applies to any future sale, and you may need to obtain a valuation of your home at the time you first rent it.

Renovate

Refreshing your existing home can be as good as moving into an entirely new one. Renovating can potentially help increase the value of your property and give you the opportunity to add or change parts of your home to make it more accessible as you get older.

Reverse mortgage

If you're 55 or over, you can release some of the equity in your home – this is known as reversing your mortgage. There are some long-term risks attached to this though, so make sure you seek professional financial advice beforehand.

Take care of your super ahead of retirement

ANZ Smart Choice Super offers low fees, investments designed to suit your changing life stages, and a range of included insurance options. Click here for more information.