Contributing the proceeds of downsizing to superannuation
Downsizer contributions are not subject to any exemptions for social security purposes. As such, it is important to consider the impact of using the downsizer contribution provision given the home is exempt but the contribution into super will not receive an exemption.
Given the stricter nature of the age pension asset test, this means that most people who are already on the age pension will have their entitlements reduced or wiped out completely if they utilise this measure.
Downsizing, upsizing or moving into your investment property
Whenever someone genuinely sell and moves into a new main residence, whether the value is greater or less than the old property, there may be an opportunity to get more money into super.
There is no distinction of 'net proceeds', which means that anyone that has surplus cash (but might be unable to contribute to super due to other restrictions such as age, work status or total superannuation balance) could potentially do so by contributing the proceeds while downsizing or even upsizing their main residence.
It is also a possibility for someone with more than one property to sell and move into one of their other properties without actually purchasing another property. This would leave plenty of surplus cash that could be contributed into super.
Moving into aged care
Some people may look to sell their home upon moving into an aged care facility to fund costs. While there may be some benefit of holding on to the former home for at least two years if they are on the Age Pension (as former home remains exempt for up to two years), after this period it will be assessed.
As such, downsizer contribution will potentially become a very important measure and impact the recommendations of financial advisers, given the ability to move it into an RPIS with a zero tax environment (assuming TBC space available), thought it should be remembered that an RPIS is deemed for income test purposes. This will provide many more investment opportunities for those entering aged care as they were usually limited to investments outside superannuation.
Existing aged care residents might be eligible for indefinite exemptions on assets and/or income tests for social security purposes of their former home and will need to be wary of this before selling their home to make a downsizer contribution, as this may not be in their best interest.
Downsizer contributions could be used as part of a re-contribution strategy to maximise tax-free component. They could make a $300,000 lump sum withdrawal from their interest with the highest proportion taxable component and then contribute the proceeds from the sale of the home back in as a downsizer contribution, which will form part of the tax-free component and minimise any potential tax for beneficiaries in future.
Last modified: Wednesday, May 1, 2019