As a doctor planning ahead for your retirement, your future comfort, lifestyle and security are probably high on your list of priorities. With this in mind, it’s important to consider your superannuation balance, property investments and ongoing financial planning options so that they all align with your retirement goals.

The Australian Government has created a scheme that allows people over the age of 65 to contribute towards their superannuation funds using the proceeds of downsizing their home.

Here’s what you need to know.

What are downsizer contributions?

Downsizer contributions into superannuation were introduced in the 2017-2018 Federal Budget. It stated that if you are an Australian aged 65 and above, you can contribute up to $300,000 into your superannuation fund from the proceeds of selling your home – given that you meet the eligibility requirements. If you have a spouse, then both of you can make a total contribution of up to $600,000. Of note, the age you can make this contribution will reduce to age 60 on 1 July 2022.

Despite its name, though, a downsizer contribution can also be applied if you’re planning on selling your current property to purchase a larger home too.

The scheme is also not classed as a ‘non-concessional contribution’ and therefore does not count towards any of your normal contribution caps.

A downsizer contribution can still be made even if you have more than $1.6 million inside the superannuation system, though it will count towards your transfer balance cap. The transfer balance cap is a lifetime limit on the amount of superannuation you can move into a retirement income stream it applies once you move your super savings into the retirement phase.

What are the qualifying requirements of the scheme?

To qualify for this scheme, here are some rules to follow:

  • You must have entered into a contract to sell your property on or after 1st July 2018. If the contract was created before this date, you will not be eligible even if the settlement has occurred after the 1st July 2018.
  • Currently you must be aged 65 or older at the time the contribution is made. Your age at the contract date or date of settlement is not important as it allows you to enter into a contract when you are, for example, 64 years old and make the contribution once you turn 65. However, be aware of the time limit that will apply to be eligible to make the contribution (see next point).
  • A Downsizer contribution must be made within 90 days of receiving the proceeds of your sale, which usually starts from the date of settlement. This must be observed unless you have been granted an official extension from the ATO.
  • There is a limit to the amount of Downsizer contribution you can make. It should be less than the amount of the sale and should not exceed the amount of $300,000 for each spouse.
  • Example 1:

Dr John Warren and his wife are eligible to make a Downsizer contribution and decided to sell their home for $1.5 million. They can contribute a maximum of $300,000 each under this scheme for a total of $600,000 between them.

  • Example 2

Dr Katherine Li and her husband who are both eligible for a Downsizer contribution, sell their property for $500,000. They can contribute a maximum combined amount of $500,000 with no more than $300,000 contribution to be made by either one of them.

  • Importantly your home must have been owned by you or your spouse for 10 years or more prior to selling. It should also be in Australia and cannot be a caravan, houseboat or other mobile home.
  • The Downsizer contribution can only be made on a once-off basis and can only be claimed on one main residence.
  • To be able to qualify for a Downsizer contribution, the proceeds from the sale of the property are either exempt or partially exempt from capital gains tax (CGT) under the main residence exemption.

What are the benefits of a downsizer contribution?

Through the Downsizer contribution, the Australian Government has effectively allowed you to potentially make a substantial voluntary boost to your superannuation and to fund your retirement from proceeds of what is typically the sale of a significant investment.

This scheme also offers other additional benefits, especially if you are nearing retirement age. Here are some of the advantages it can provide:

  • The Downsizer contribution is an opportunity to top up your superannuation fund even if you are ineligible to contribute in other ways, such as due to age, work status or the amount you’ve currently got in your superannuation fund.
  • People aged 67 to 74 usually need to satisfy a work test to make voluntary super contributions, while those aged 75 and older are generally ineligible to make any voluntary contributions to their superannuation funds. However, the good news is, no work test or age limits apply to downsizer contributions into super and remember the age is reducing to 60 from 1 July 2022.
  • Another benefit of this scheme is there’s no requirement to buy a new home. If you decided to sell your main property and make a Downsizer contribution into your superannuation fund, you are not required to buy a new home with any of the proceeds from the sale.
  • Your Downsizer contribution will not affect your total superannuation balance until it is re-calculated to include all contributions, including your Downsizer contribution at the end of the financial year.

Get tailored advice that suits your situation

Growing your superannuation fund balance with the Downsizer contribution can be a smart choice for healthcare professionals like yourself with your sights set on retirement. However, the overall process can be complicated and tedious – especially for a busy Doctor.

Additionally, the above information is provided as a general guide and doesn’t take into account your financial goals, superannuation balance or specific circumstances.

For these two reasons, it’s important to consult the help of a financial advice specialist and consider seeking advice before acting on any of the information contained herein.

Fortunately, you can rely on our experienced team at Doctors Wealth Management to review your situation and recommend a personalised financial solution for your own circumstances.

We can help you achieve a peaceful and rewarding retirement by getting the most benefit out of Government schemes such as the Downsizing Contributions initiative.

You can find additional resources and information about Doctors Wealth Management  on this website, booking an appointment or calling 1800 128 268 to speak to us for a no-obligation initial discussion.

Doctors Wealth Management: Always in a doctor’s best interest

 

 

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Important disclaimer: The material contained in this publication is of general nature only. It is not, nor is intended to be legal, accounting, tax or financial advice. Doctors Financial Services Pty Ltd (DFS) and its related entities have not considered your individual objectives, financial situation and needs in providing this information. If you wish to take any action based on the content of this publication we recommend that you seek appropriate professional advice. While we endeavour to ensure that this information is as current as possible at the time of publication, we take no responsibility for matters arising from changed circumstances, information or material. DFS and its related entities will not be liable for any loss or damage, however caused (including through negligence), that may be directly or indirectly suffered by you or anyone else in connection with the use of information provided. Doctors Wealth Management is a registered business name of Doctors Financial Services Pty Ltd ABN 56 610 510 328, AFSL 487758. Doctors Wealth Management Financial Advisers are Authorised Representatives of DFS.

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