Downsizer superannuation contributions

In an effort to reduce pressure on housing affordability, the government wants to encourage older Australians to sell their home in order to improve housing stock. To achieve this, the government has introduced a new opportunity for older Australians to contribute some of the proceeds from the sale of their home into superannuation.

Under the new measure, which took effect in July 2018, individuals aged 65 years and over who sell their home may contribute capital proceeds from the sale of up to $300,000 per member as a “downsizer” superannuation contribution. This means an eligible couple can potentially contribute up to $600,000 from the sale of their home.

The good news is that downsizer contributions do not count towards the member’s non-concessional contributions cap and they are not subject to the “work test” that usually applies to voluntary contributions by members aged 65 years and over. The contributions may be made even if the member’s total superannuation balance (TSB) exceeds $1.6 million, but once made, they will increase the member’s TSB. The usual limit on transferring benefits into the tax-free retirement phase also applies.

To qualify for downsizer contributions, a member or their spouse must have owned their home for 10 years prior to the sale and the sale must qualify for the CGT main residence exemption, either partially or in full. Despite the name, “downsizer” contributions can be made even if the member does not purchase another replacement property.

 Additionally, the member must make the downsizer contribution within 90 days of receiving the sale proceeds, and must complete a specific form and provide it to their superannuation fund when, or before, they make the contribution. Members should therefore plan their downsizer contribution carefully to ensure its eligibility.

 Care must also be taken regarding the effect of downsizer contributions on pension entitlements, which may result in either a complete loss of, or a reduced, entitlement. While the family home is not assessable for the purposes of determining Age Pension eligibility, superannuation savings are.

 If you are thinking of selling your home and implementing a “downsizer” contribution, talk to us about whether you will qualify and whether you may require financial advice about this strategy. It is important that this contribution forms part of a long-term retirement plan that covers the relevant taxation, superannuation and Age Pension issues.

About the author

Adrian H. Law is a leading provider of SMSF Accounting and SMSF Auditing services.