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Is it time to downsize?

Updated: Jan 12, 2023

Over the last 3 years, we have all seen the house price change mostly influenced by the level of interest rates. We watched the prices drop at the beginning of Covid, then when interest rates were lowered, we saw the house sale prices rocket skywards. Units didn't rocket skywards at anywhere near the same rate as freestanding homes driven by covid lockdowns wanting more space.

Now, after a string of monthly interest rate rises, the home sale prices are coming off with house sale prices decreasing at a faster rate than units. Where they will go from here depends on the interest rate movements controlled by the RBA.

The question is: Is it a good time to downsize and reduce the amount of money tied up in the property market?

Well that partly depends on...

What you are going to do with the money you release?

You could spend it, bank it or put it

Into Superannuation

If you are aged 55 or over as at 1 Jan 2023, then you may be eligible to contribute up to $300,000 each into super by using a Downsizer Contribution.

Also, if you haven't made any Non-Concessional contributions in the last 3 years, you could also contribute up to $330,000 each. Altogether, you may be able to boost your retirement savings by $1.26 million (subject to the Total Super Balance cap of $1.7m each at last June 30). That may make a material difference to your retirement lifestyle by providing you with additional tax free income.

But do you qualify for the downsizer contribution?

In summary, the 5 main Downsizer Contribution rules are:

  1. The home is a qualifying dwelling such as a home, unit or apartment. It must meet the CGT main residence exemption.

  2. You are aged 55 or over from 1 Jan 2023

  3. The home was owned by you or your spouse for at least 10 years prior to sale

  4. The downsizer contribution is made within 90 days of change of ownership.

  5. The contribution is made using the required ATO form.

It all looks simple enough, but with everything, it is the fine print that counts.

Owned for 10 years - you need to have owned the property for 10 years, but you don't have to have lived in it for the whole time. You do need to satisfy the CGT Home exemption test though. Also, if you have subdivided, the sale proceeds need to be from the parcel of land with the home on it. If you have rented your property or subdivided, financial advice could help you navigate the fine print here.

What if the home is owned in only one name? If you own a home and your spouse lives with you in that home, the sale proceeds of the home can be used to make downsizer contributions for both you as the owner and your spouse. This could boost your collective super by up to $600,000 subject to the $1.7m Total Super Balance cap for for each of you.

Estate Planning considerations: if you have children from a previous relationship, care needs to be taken to ensure your desired outcome is reached. The downsizer contribution is not taxed when paid to adult children from super after death and you may be able to control the payment more easily. However, your new spouse contributing to super will result in control lost of those funds.

Age Pension and Care entitlements: If one of you are receiving the age pension, downsizing could reduce your pension entitlements and/or increase age pension fees if you or your spouse are receiving care. However, if one of you is under age pension age, then you may be able to keep the contribution out of age pension calculations. Careful planning is required to determine the optimal amount of capital released by the downsize.

So is now a good time to downsize? We can help you decide that by running the numbers and enable you to compare the different scenarios you are thinking about as well as prevent you from tripping on rules you didn't know about.

If you would like to know more, please read the related articles below, register for our upcoming webinar or give us a call 02 8013 5205 or contact us via our website.


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