Downsizing Superannuation Contributions

For many Australians, the family home is their largest asset. Once children have moved out and retirement approaches, downsizing to a smaller property can free up both cash flow and lifestyle options. Recognising this, the government introduced the downsizer contribution measure, allowing older Australians to contribute some of the proceeds from the sale of their home directly into superannuation.

What is a Downsizer Contribution?

A downsizer contribution is a one-off, after-tax contribution you can make into your super fund from the sale of your main residence. Unlike most other contribution types, it has its own rules and isn’t restricted by your total super balance or standard contribution caps.

Key Benefits

• Larger contributions – You can contribute up to $300,000 per person ($600,000 for a couple) from the sale proceeds.
• No age restrictions – Available to eligible individuals aged 55 and over (from 1 January 2023; previously age 65).
• No work test required – You don’t need to meet employment conditions to contribute.
• Outside normal caps – The contribution doesn’t count towards concessional or non-concessional caps, although it will still form part of your total super balance and transfer balance cap once inside super.

Eligibility Criteria

To make a downsizer contribution, you must:

• Have reached the eligible age (there is no maximum age limit) at the time you make a downsizer contribution
  • from 1 January 2023, 55 years or older
• Have owned your home for at least 10 years or more before the sale
• Ensure the property qualifies (at least in part) for the main residence capital gains tax exemption.
• Make the contribution within 90 days of settlement.
• Submit the ATO downsizer contribution form to your super fund when, or before, making the contribution.

Important Considerations

• One-time opportunity – You can only make a downsizer contribution from the sale of one home.
• Impact on Age Pension – Moving funds into super may affect your eligibility for the Age Pension, as the money will be counted under the assets test.
• Not tax-deductible – These contributions are made with after-tax money and can’t be claimed as a tax deduction.
• Superannuation rules still apply – Once inside your fund, the normal rules around accessing super apply (generally preservation age or retirement).

Is It Right for You?

For retirees looking to boost their superannuation and generate more retirement income, downsizer contributions can be a valuable strategy. However, it’s important to weigh up how this might affect your overall financial plan, including Age Pension entitlements, estate planning, and cash flow needs.

Speaking with a qualified financial adviser before selling your home or making a contribution can help ensure you get the most benefit from this opportunity.

Source: fiducian.com.au

Lindale Insurances Pty Ltd ATF Lindale Insurances Trust ABN 27 027 421 832 is a Franchisee of Fiducian Financial Services Pty Ltd, Level 4, 1 York Street, Sydney NSW 2000. AFSL 231103 ABN 46 094 765 134.

The information (including taxation) provided on this website is general in nature and does not consider your individual circumstances or needs. Do not act until you seek professional advice and consider a Product Disclosure Statement.