An eligible person selling a home can make a tax-free contribution to a superannuation fund of up to $300,000, or $600,000 per couple This contribution is not subject to the typical caps and restrictions that usually apply to other types of superannuation contributions.
Downsizer Contribution Eligibility
Given the title of the measure, ‘Downsizer Contribution’, you would logically conclude that it may only apply to a person in retirement who wants to move to a smaller home or needs to go into a care situation (i.e. downsizing)…… but you’d be wrong.
Not only has the concession been extended to pre-retirees (i.e. anyone aged 55 and over), but there has never been a requirement that the property being sold is currently your main residence, or that the replacement property be smaller in size or less expensive than the property being sold. In fact there is no requirement that there be a replacement property at all.
Consequently this means that the measure can be used in common scenarios such as interstate relocations, main residence changeovers including upsizing, and sale of an investment property (which at one time was the main residence), as well as uncommon scenarios such as a partial sale. The concession is also accessible by a person’s spouse despite not having an ownership interest in the property.
Rather, the qualifying criteria is simply:
- You or your spouse owned the property for 10 years or more prior to sale
- The property is located in Australia and was your main residence at some point during the ownership period (note no minimum timeframe is stated)
- The proceeds are eligible for either a part or full main residence capital gains tax (CGT) exemption, or would be if not for being a pre-CGT asset, including in scenarios of capital loss.
- You meet the qualifying age at the time of the contribution
- You have not previously made a downsizer contribution to your super.
- You make the downsizer contribution to superannuation within 90 days of receiving the proceeds of sale and provide your fund with the prescribed ATO form either before or at the time of making the downsizer contribution.
It is not inconceivable that a longer term rental property could strategically become a main residence, if only for a short while, so as to access the concession upon subsequent sale.
How much can I contribute?
According to the Australian Taxation Office (ATO), a Downsizer Contribution allows the person and their spouse to each make up to a maximum of $300,000, provided that the total contribution amounts do not exceed the proceeds from sale of the home. The contribution can also be made in several smaller parcels.
It’s also worth mentioning that there is no requirement that the source of the contribution be the sale proceeds themselves.
What are the benefits of downsizer contributions?
- Downsizer Contributions provide a way to top up your superannuation balance. This measure provides additional flexibility for superannuation members to top up their retirement savings in the concessionally taxed superannuation environment, including beyond the limits of annual contribution caps and Total Superannuation Balance constraints.
- No work test or age limits apply to Downsizer Contributions. Those over age 75 generally can’t make any additional contributions to superannuation. For Downsizer Contributions, these rules don’t apply.
- Annual contribution caps aren’t applicable. Downsizer Contributions can be made in addition to any concessional and non-concessional super contributions you are eligible to make, thereby increasing your opportunities to maximise your superannuation balance.
- Downsizer Contributions aren’t subject to the $2.0m Total Superannuation Balance restriction. This measure also enables members to contribute to superannuation even if they have a total superannuation balance of $2.0 million or more, which ordinarily would prohibit any further after-tax contributions.
- Both members of a couple can take advantage. For couples, each member can make the most of the downsizer contribution opportunity, which means up to $600,000 per couple can be contributed into superannuation.
Other Wealth Planning Considerations
- You only have 90 days after the sale of your property settles in which to make the contribution.
- Downsizer contributions are not tax deductible.
- Downsizing your home may impact Age Pension eligibility.
The downsizer contribution is an excellent opportunity to increase your superannuation assets if you meet the requirements.
If you would like to learn more about how we can help you with this strategy, get in touch with our SMSF specialist today.