SMSF incentives for those looking to downsize their home

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As we grow older, it may become more attractive or perhaps even necessary to downsize our homes.  Downsizing may mean moving to more suitable accommodation, a release of equity to support retirement plans or maybe, a move to aged care or retirement living.

Potential benefits of downsizing

From 1 July 2018, homeowners over 65 years old will be allowed to make non-concessional superannuation contributions of up to $300,000 each from the proceeds of the sale of their home if they meet certain criteria such as having lived in the home for at least 10 years.

In summary:

  • Non-concessional contributions to superannuation for each homeowner of a maximum of $300,000 from sale proceeds (that is $600,00 per couple if they were both owners of the home);
  • An exemption from the work test for this cap;
  • Homeowners within excess of $1.6 million in superannuation still able to make these contributions but they will continue to be capped to investments of $1.6 million into income streams; and
  • The full superannuation fund balance fully assessed for Centrelink/Veterans’ Affairs and aged care purposes.

There are also other potential benefits including earnings on the invested funds will be taxed at the superannuation tax rate of 15%, or may be tax-free if rolled over into an income stream, rather than the homeowner’s marginal tax rate.

What next?

It is essential that before downsizing, you seek good quality legal and financial advice about the implications of doing so.  While there are potential advantages to downsizing, in some instances, there may also be unexpected negative consequences.

If you are considering downsizing, contact us for comprehensive legal advice and peace of mind.

 

Rebecca Edwards
With a background in aged care management, Rebecca brings hands on experience and insight into our elder law and aged services areas as well as a thorough understanding of complex estate planning issues and disputes.