Downsizer Contributions
A downsizer contribution is a powerful and often underused strategy for boosting retirement savings -- but the rules are strict, and the mistakes are hard to undo.
Downsizer Contributions
Transferring proceeds for hour into super
When clients sell a long-heldfamily home, they may be able to channel part of the proceeds intosuperannuation by using the downsizer contribution rules. While the concept isstraightforward, eligibility can be nuanced -- particularly where the main residencecapital gains tax (CGT) exemption is only partial, or where spouses havedifferent ownership histories.
Basic eligibility conditions
To qualify, the seller must meetall of the following conditions:
- They must have reached the eligible age of 55 years atthe time of making the contribution.
- The eligible dwelling must be located in Australia andhave been owned for at least 10 years.
- The disposal of the dwelling must be exempt from CGTunder the main residence exemption to some extent (a full exemption is notrequired).
- The contribution must be made within 90 days ofsettlement, and an election form must be provided to the fund no later thanwhen the contribution is received.
The downsizer contribution canonly be used once per individual and is limited to the lesser of the gross saleproceeds or $300,000 per person.
Does the sale need to be fully CGT-exempt?
A common question is whether thesale must qualify for the full main residence exemption. Importantly, a fullexemption is not required.
Even if only part of the capitalgain is exempt under main residence rules, the property may still qualify --provided all other conditions are met.
Is the property required to be the main residence at sale?
The property does not need to bethe seller's principal residence at the time of sale. Living in the propertyfor some years and renting it out later does not disqualify it, as long as theownership and residence history supports at least a partial main residenceexemption.
Special rules for pre-CGT properties
Where a property was acquiredbefore 20 September 1985, the rules look at whether part of the gain would havebeen disregarded had the property been a CGT asset. A key requirement is thatthere is a dwelling that qualifies as the main residence. Disposal of vacantland will generally not satisfy the test and will not meet downsizerrequirements.
Eligibility of a non-owning spouse
It is common for only one spouseto appear on the property title. A non-owning spouse may still qualify for adownsizer contribution if all other requirements are met, apart from ownership.
However, a spouse who neverlived in the property and could not reasonably have treated it as their mainresidence is unlikely to be eligible.
Preservation and access to funds
A downsizer contribution issubject to the standard preservation rules. Once contributed, the amount cannotbe accessed until a condition of release is met -- such as reachingpreservation age and retiring, or reaching age 65.
Consider future cash flow needsbefore making the contribution. Selling the family home and channelling theproceeds into super may affect Centrelink entitlements including the AgePension.
Before you contribute
Although seeminglystraightforward, downsizer contributions involve several nuances. Pleasecontact us if you have any questions before proceeding.
Useful ATO resources:
- Downsizer super contributions:ato.gov.au/individuals-and-families/super-for-individuals-and-families/super/growing-and-keeping-track-of-your-super/how-to-save-more-in-your-super/downsizer-super-contributions
- Downsizer contributions and capital gains tax:ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/real-estate-and-main-residence/main-residence/downsizer-contributions-and-main-residence-exemption
