Learn to feel at home with the downsizing contribution rules

Max Newnham


January 17, 2018

In what can best be described as an early Christmas present, federal Parliament discarded one scary proposal and passed legislation on December 14, 2017, giving effect to an unexpected improvement in superannuation.

The law passed was the last piece of legislation related to a budget proposal in May 2016 under the title “fair and sustainable superannuation”. One of those proposed changes, in particular, had struck fear into most Australians and the professionals who advise them. It was the policy (best described as a good idea at the time) that imposed a $500,000 lifetime limit on non-concessional contributions, backdated to July 1, 2007, when such contributions commenced.

Mercifully, the government has dropped this draconian and ill-advised policy, after much public and industry consultation.

The real gift from December, however, was the addition of a new policy that had not been previously announced. People can now contribute up to $300,000 to a superannuation fund out of the proceeds of selling their home as a result of downsizing.

Until this legislation was passed, there was some confusion as to what the conditions would be for people making what has become known as a downsizer superannuation contribution (DSC). One concern had been what would constitute downsizing.

As it turns out, within the seven conditions that a person must satisfied to make a DSC, there is no definition of downsizing, nor even any requirement to actually downsize. The main requirement is that the DSC must come from the proceeds of the sale of a main residence.

Now that the legislation has passed, we know that Australians who could not maximise their contributions throughout their working life will be allowed to increase their superannuation balance after they have finished working by selling their residence.

Note that despite the maximum DSC of $300,000 per individual, in some circumstances the limit for a couple could be less than $600,000.

This is because the maximum DSC for a person is the lesser of $300,000 and the total proceeds received from the sale of a home. This means if a couple sold their home for $550,000, they would be limited to a combined maximum DSC of $550,000.

Where a person or a couple have not made the maximum $300,000 DSC per person, they can make further contributions that will bring them up to that limit upon the sale of another property that is their residence, if all of the relevant conditions are met.

There are many measures that restrict the amount of superannuation Australians can have to fund their retirement, but DSC is one of the few policies that can help people bolster their superannuation.

It was pleasing to see that the seven conditions that must be met to make a DSC are reasonably broad, making it relatively easy for people to meet them. One of the only sour notes is that the $300,000 maximum contribution will not increase.

In my next column, I will detail the seven conditions that must be met.

Professional Planner’s annual Post Retirement Conference will be on March 21, 2018. The one-day event will help advisers transition their clients to retirement. To read more or to register, click here.   

TOPICS:   contributions,  downsizing

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