The downsizer contribution offers an opportunity for eligible homeowners to boost their super balance by up to $300,000 without impacting existing contribution caps. And, since 1 January 2023, the downsizer contribution has been accessible to more people, with the age threshold reducing from 60 to 55.

If you’re thinking of selling the family home, you should consider how you could benefit from the downsizer rules. But before making any plans, be sure to understand the provisions, and the potential impacts, fully.

Now available to more people

The downsizer contribution was introduced in 2018 and, at that time, was available to people aged 65 and older. Since then, the age threshold has been reduced twice, most recently, on 1 January 2023. The downsizer contribution has been extended to people as young as 55.

If you’re aged 55 years or older, you can make a non-concessional (after tax) contribution to your super of up to $300,000 from the sale proceeds of your family home. Your downsizer contribution will not count towards your contribution caps in the year you make it.

The downsizer measures apply to individuals, so a couple which meets the criteria may contribute up to $300,000 each, or $600,000 combined.

Now that the non-concessional cap has been reduced to $110,000 per annum, the downsizer measure offers a real chance for ordinary Australians to maximise their retirement savings.

Playing by the rules

You need to meet a list of conditions to be eligible to make a downsizer contribution.

  • You must be 55 years or older at the time of making the contribution.
  • You, or your spouse, must have owned your home for at least 10 years.
  • The property sold must be your main residence and it must be in Australia.
  • You can only make downsizer contributions from the sale of one home.
  • You must make your downsizer contribution with 90 days of settlement.
  • A caravan, houseboat or other mobile home does not qualify as a main residence.

Is there a maximum age limit?

No, there is no maximum age limit, nor is there a work test to be satisfied. Even super members who exceed 75 years old and can no longer make non-concessional (after-tax) contributions can make a downsizer contribution.

How will the ATO ensure compliance?

To make a downsizer contribution, you need to complete ATO’s Downsizer contributions into super form, and submit this to the trustee of the super fund. The super fund will report downsizer contributions to the ATO as part of the fund’s annual reporting requirements. The ATO will run its own verification checks to ensure the member has made an eligible downsizer contribution.

Things to be mindful of….

SMSF Trust Deeds may need to change

If you have an SMSF and are thinking of making a downsizer contribution, you must first seek advice regarding your SMSF trust deed. Depending on its wording, your trust deed will need to be varied to expressly allow members to make downsizer contributions.

Impacts on the age pension and other Centrelink entitlements

Your decision to sell your family home and make a downsizer contribution to your super fund may impact your pension entitlements. When Centrelink calculates your age pension, it does not include your main home in the assets test. However, superannuation savings are included once you reach retirement age. This means that shifting a substantial portion of your assets from your home into superannuation may adversely affect your Centrelink entitlement. Be wary, seek advice if necessary, and be sure to understand fully the impacts before making any decision to utilise the downsizer measures.

Example, Sean and Patsy

Sean is 62 and Patsy is 58. Patsy is a homemaker, and Sean is still working, but is eager to transition to retirement. They have modest super balances, particularly Patsy as she’s had limited paid work over the years. With Sean’s retirement imminent, they’re keen to boost their retirement savings so that they can look forward to financial security in their retirement. They also want to maximise the benefit of the lower-tax environment which super offers.

Their children have long since moved out of the family home, which they’ve owned for over 20 years. They’ve been contemplating downsizing for some time, and have decided the time is right, and plan to put their house on the market.

Sean and Patsy estimate that the move from their current home to a unit in a neighbouring suburb will release approximately $700,000 in equity. They’ve decided to make the maximum possible downsizer contributions, $300,000 each ($600,000 combined). The downsizer contributions don’t count towards their $110,000 annual caps, so they also decide to make a further $100,000 contribution for Patsy, to help equalise their balances.

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