Q: Do I actually have to downsize if I take advantage of the Government new downsizing initiative?
A: No. The new rule, which takes effect from July next year will allow people over age 65 to contribute up to $300,000 from the sale of a home into super. There is no obligation to make a subsequent purchase.
The Government released draft legislation for the new scheme earlier this month. The draft says existing contribution caps and restrictions will not apply to the downsizer contribution but the $1.6 million transfer balance cap and age pension means test will apply.
The scheme applies to homes held for a minimum of 10 years. The home must have been the main residence but only for a portion of the period of ownership. For example, if you moved out of your home for several years prior to selling it, you would still be eligible.
Both partners can make the $300,000 contribution. There is no requiement for both to be on the property title.
The scheme will only apply to home sales where the contract of sale is entered into on or after July 1, next year.
The scheme only permits non-concessional contributions to super.
The Government has recommended that people check with their super fund to make sure it will accept a downsizer contribution. Fund trustees are free to make a call on whether they will accept the contributions.