In the Federal Budget released in May 2017, the government announced an additional $300,000 of superannuation contributions for those aged 65 or more and who sell their home.
However, the initial announcement left a number of key questions unanswered. One key question is as follows.
The announcement said both members of a couple could access this arrangement. This would potentially allow for additional contributions of $600,000 (ie, 2 x $300,000). However, the announcement also said that it would only apply for the ‘proceeds of selling their home’. For asset protection reasons, it is very common for a home to only be registered in name of one member of a couple. Accordingly, legally, the home is only the home of one member. The question then is whether the home should be registered in both members’ name in order to be eligible for these additional contributions.
This is a critical question because it impacts how clients in their 60s, 50s, 40s and even younger should register ownership of any home that they are buying right now.
Treasury released exposure draft legislation on Friday 21 July 2017 (https://treasury.gov.au/ConsultationsandReviews/Consultations/2017/Housing-related-superannuation-measures). This exposure draft legislation answers various key questions. Naturally though the exposure draft legislation might change before it receives Royal Assent and if so the following answers will change.
Generally, downsizer contributions are contributions made by individuals aged 65 years and over from the proceeds of selling their main residence which they have owned for at least 10 years.
From 1 July 2018, downsizer contributions of up to $300,000 can be made within, broadly, 90 days of settlement and will not constitute non-concessional contributions. This means it will be irrelevant whether the individual has a total superannuation balance greater than $1.6 million and whether the individual has previously used up all of their non-concessional contributions cap.
Whose name to buy houses in right now?
The Budget announcement simply said:
The Government will allow a person aged 65 or over to make a non-concessional contribution of up to $300,000 from the proceeds of selling their home from 1 July 2018
These contributions will be in addition to those currently permitted under existing rules and caps and they will be exempt from the existing age test, work test and the $1.6 million balance test for making non-concessional contributions
This measure will apply to sales of a principal residence owned for the past ten or more years and both members of a couple will be able to take advantage of this measure for the same home
As discussed in the introduction, however, a key question that arises is whether the principal residence should be registered in both members’ name to be eligible for these additional contributions.
In s 292-102(1)(c) of the exposure draft legislation, a contribution made from proceeds of sale for a home held either by the individual or the individual’s spouse would be covered under the downsizer contribution section. This means an individual can still make downsizer contributions from the sale even if the house is under their spouse’s name.
What if the home was registered in a former spouse’s name for a period in the last 10 years?
If the main residence used to be registered in a former spouse’s name, the period that it was under their name would still contribute to the 10 year period for the individual. Section 292-102(1)(e) of the exposure draft legislation says that the requirement is that at all times during the 10 years before the disposal, the interest was held either by the individual, the individual’s spouse, or the individual’s former spouse. Therefore, broadly, even if there was a divorce or separation in the last 10 years, the individual would still be able to sell the home previously registered in their former spouse’s name and make downsizer contributions to their super.
When can one sell their homes to take advantage of this?
The end of the exposure draft legislation noted that the amendments made by the amendment bill are to apply to sales of property where the contract of sale was entered into on or after 1 July 2018.
Accordingly, it’s possible that people might wait until 1 July 2018 to sell their homes.
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This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional.