Save thousands on tax by downsizing the family home

Downsizing from your family home to something smaller will not only free you from endless maintenance, yard chores and housework, it could also save you thousands in tax. If you do it right.

Many people nearing retirement age are looking into the tax advantages of putting part, or all, of the proceeds of the sale of their home into their superannuation to avoid getting slugged at tax time.

The ATO calls it the ‘Downsizer Contribution’.

Up to $300,000 of the proceeds of the sale of your home can make up the contribution, or $600,000 for a couple. The contribution will not count towards the non-concessional contribution cap or the $1.6 million balance test however it may affect your eligibility for the age pension and is not tax-deductible.

So what’s the benefit?
Earnings from usual investments, like shares or an investment property, are taxed at your marginal rate, which may be as high as 47%, however earnings from investments within super are only taxed at around 15%. This could represent a tax savings of many thousands of dollars depending on your financial situation.

Returns from super are also generally higher than standard deposit accounts over the long term.

Eligibility Criteria for Downsizer Contributions:

To be eligible for the scheme there are a few boxes you have to tick:

  • You must be 65 years of age or older.
  • The scheme only applies to proceeds of the sale of your principal place of residence within Australia. It does not apply to investment properties, mobile homes, caravans or houseboats.
  • You or your partner must have owned your home for 10 years or more.
  • The contribution amount can’t be greater than the total proceeds of the sale of your home.
  • You must make the contribution within 90 days of receiving the proceeds of the sale of your property.
  • You only get one bite of the cherry – the scheme can only be accessed once per person for one property only.
  • Superannuation is a complicated business, and Australia’s taxation system is even more complex, so it’s important you speak to a financial advisor before committing to a new financial strategy.

The information in this article is provided as general interest and is not intended as financial advice in any way. Any general tax information provided in this article is intended as a guide only. Financial and taxation advice on any of the topics outlined in this article should be sought from a qualified, experienced and reputable financial advisor or tax agent who will be able to conduct a proper risk assessment for your individual situation. This article is not intended to be a substitute for specialised taxation advice or an assessment of an individual’s liabilities, obligations or claim entitlements under Australian taxation law.