3. Downsizer Superannuation Contributions

As part of transitioning into retirement, for many, selling the family home is a major financial and life decision.

The Government has reduced a barrier for older Australians to move from homes that no longer meet their needs. From 1 July 2018, people aged 65 and older can make a non-concessional superannuation contribution of up to $300,000 from the proceeds of selling their home. Existing contribution caps and restrictions will not apply to the downsizer contribution.

Why do I have to be over 65?

This measure provides an exception to existing contribution rules, which have some restrictions on contributions for people aged over 65. Under 65, individuals can generally already make non-concessional contributions of $100,000 per year, or $300,000 in a year using the three-year ‘bring forward’.

Is my home eligible?

The sale of any dwelling in Australia (other than a caravan, houseboat or mobile home) can qualify the seller to make a downsizer contribution, provided the dwelling has been owned for at least 10 years.

How does the 10-year rule work?

You or your spouse must have held the property at all times for the 10 years leading up to the sale. You do not have to have lived in the home for all of the last 10 years, but it must meet the test for a ‘main residence’ under the Capital Gains Tax rules.

Do I actually have to ‘downsize’?

You will be able to make a contribution once you sell an eligible home. But you do not necessarily have to make a subsequent home purchase; you can move into any living situation suitable for you.

How long do I have to contribute?

You will have 90 days after the sale of your home settles in which to make the contribution.

How much can I contribute?

The maximum you can contribute is $300,000 or the sale price of your home, whichever is less. You may make more than one contribution, but the total must not exceed this maximum of $300,000.

Can my spouse contribute?

Yes, you may each make a downsizer contribution, even if your spouse was not on the title of your home. But the combined value of your spouse’s contribution and your own cannot exceed your home’s sale price.

Can I downsize more than once?

No. You can only ever make downsizer contributions in respect of a single main residence.

How do I make a downsizer contribution?

You should talk to your financial planner or superannuation fund about how to make a downsizer contribution. If you don’t have a superannuation account, you may open a new account to make your contribution.

Does this affect my Age Pension?

Downsizer contributions are not exempt from the Age Pension means test. You should seek financial advice to consider whether this might affect you.

Does this affect my Transfer Balance Cap?

Downsizer contributions are exempt from contribution rules but they still count toward the $1.6M transfer balance cap.

The information contained in this publication is based on the understanding KeyInvest (ABN 74 087 649 474 AFSL No. 240667) has of the relevant Australian legislation as at the date shown in this publication.

The information contained in this publication is of a general nature only and is intended for use by financial advisers and other licensed professionals only. It must not be handed to clients for their keeping nor can any copies of sections of this publication be given to clients. KeyInvest is not a registered tax agent under the Tax Agent Services Act 2009. We recommend that your client be referred to their registered tax agent or legal adviser prior to implementing any recommendations that you may make based on the information contained in this publication.