Understanding Downsizer Contributions
Downsizer contributions to superannuation have been around since 2018. The original intention of downsizer contributions is to encourage older Australians to downsize their accommodation and move to smaller homes to assist with Australia’s housing crisis.
Since 2018, the eligibility age to make a downsizer contribution has reduced from age 65 to age 55.
So how do downsizer contributions to super work and what are the opportunities?
If you are 55 or older, you may be able to contribute up to $300,000 from the proceeds of the sale (or part sale) of your home into your superannuation fund. This is subject to the eligibility criteria below. It’s important to note, the contribution amount can’t be greater than the total proceeds from the sale of the house.
A downsizer contribution is a non-concessional contribution, but it doesn’t count towards the contribution cap. It will not affect your total superannuation balance until it is re-calculated at the end of the financial year. It can also be made regardless of your Total Superannuation Balance, although will count towards your Transfer Balance Cap.
You must meet these eligibility conditions:
- You have reached the eligible age (and there is no maximum age limit) at the time you make a downsizer contribution. From 1 January 2023 this is 55 years or older.
- Your home that was sold, was owned by you or your spouse for 10 years or more before the sale. The ownership period is generally calculated from the date of settlement of purchase to the date of settlement of sale.
- Your home is in Australia and is not a caravan, houseboat, or other mobile home.
- The proceeds (capital gain or loss) from the sale of the home are either exempt or partially exempt from capital gains tax (CGT) under the main residence exemption. Or the home would be entitled to the exemption if it was a CGT rather than a pre-CGT asset (acquired before 20 September 1985).
- You make your downsizer contribution within 90 days of receiving the proceeds of sale (usually at the date of settlement).
- You have not previously made a downsizer contribution to your super from the sale of another home or from the part sale of your home.
- You provide your super fund with the ‘Downsizer contribution into super form’ either before or at the time of making your downsizer contribution.
If your home was only owned by one spouse and was sold, the spouse that did not have an ownership interest may also make a downsizer contribution. Or they may have one made on their behalf, provided they meet all the other requirements.
Downsizer Contribution Planning Opportunities
Downsizer contributions create several planning opportunities for those eligible to use them and include:
- The ability to increase the amount of retirement capital in superannuation or pension phase.
- The ability to use the downsizer contribution to assist in managing superannuation tax components. And provide a more beneficial superannuation estate planning outcome through an adjustment to pensions or using a withdrawal and recontribution strategy.
- The ability to equalise a couple’s level of retirement capital, for improved capital longevity, cashflow and estate planning outcomes.
You are only eligible to make one downsizer contribution in your lifetime. We recommend contacting your Johnsons MME Financial Adviser to seek appropriate financial advice before proceeding.