From 1 January 2023, eligible individuals aged 55 years and over can choose to make downsizer contributions into their super of up to $300,000 per person ($600,000 per couple) from the proceeds of selling their home.

This comes after the eligibility age was reduced from 65 years and over to 60 years and over, effective from 1 July 2022.

The further age reduction provides an incentive for a wider range of super contributors to increase their retirement funds in a concessionally taxed environment.

Eligibility

To be eligible, all of the following conditions must be met:

• From 1 January 2023, the contributor has reached 55 years or more at the time a downsizer contribution is made. There is no maximum age limit;
• The home was owned by a contributor or contributor’s spouse for 10 years or more prior to the sale – the ownership period is generally calculated from the date of settlement of purchase to the date of settlement of sale;
• The 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 would be entitled to such an exemption if the home was a CGT rather than a pre-CGT asset (acquired before 20 September 1985);
• The contributor provides a ‘Downsizer contribution into super’ form with their super fund either before or at the time of making the downsizer contribution;
• The downsizer contribution is made within 90 days of receiving the proceeds of sale, which is usually at the date of settlement; and
• No previous downsizer contributions have been made into super from the sale of another home or from the part sale of a home.

Benefits of making downsizer contributions

• Maximum contributions of $300,000 per spouse can be made even if the home was owned by one of the spouses only;
• They can be made without having to pass the work test;
• They do not count towards the non-concessional contribution caps, meaning the contributions can still be made when the total superannuation balance (TSB) exceeds $1.7m; and
• There is no requirement to actually downsize or purchase another home.

Depending on circumstances, there may be an ability for a couple to combine the downsizer contributions with the bring forward rules to boost retirement savings by a total of up to $1.26m in one financial year.

Considerations

• The TSB will be re-calculated at the end of the financial year in which the downsizer contributions are made. This may limit the amount of non-concessional contributions that can be made in future years;
• Downsizer contributions count towards the transfer balance cap which is currently $1.7m (this increases to $1.9m on 1 July 2023). This will apply when moving accumulated super savings into retirement phase income streams in future years; and
• There are no social security concessions for downsizer contributions. This means that all superannuation interests count towards assessable assets and are subject to deeming once the pension age is reached.

Before contributions are made, the contributor should ensure that their super fund accepts downsizer contributions.

If the contribution does not meet the eligibility requirements, the fund will need to assess whether it could have been made as a personal contribution under its acceptance rules.

If so, the amount will count towards the non-concessional contributions cap.  If not, the fund will be required to return the amount to the contributor.

Learn more

To learn more about how this may apply to you, contact Kristy Baxter or Angela Stavropoulos on taxmed@pilotpartners.com.au or (07) 3023 1300.