The Home Downsizer Contribution: Everything You Need to Know

Downsizer contributions are an opportunity that exists for you to get a huge amount into super, just when you thought it was too late.

So, what’s so good about a downsizer contribution? Well, you can contribute up to $600,000 into super and use this amount to start a tax-free income stream. Plus, all investment earnings derived from this amount will be tax-free. So, no need to set up that Swiss bank account, because you’ve got your own little tax-have right here and I’m about to show you how it’s done.

Home Downsizer Contribution

The downsizer super contribution allows you to contribute up to $300,000 per person of the proceeds from the sale of your home into superannuation, provided certain conditions are met.

What is a Downsizer Contribution?

The home downsizer contribution allows people aged 55 and over to contribute the proceeds from the sale of their home into superannuation, up to an amount of $300,000 per person.

This downsizing incentive scheme is designed to encourage you to release equity in your home and use the funds to assist in funding your retirement.

Related article: Can You Use Your Super to Pay Off Debt?

Downsizer Contribution Rules

Certain rules must be met for your downsizer contribution to be valid. Specifically, the following criteria needs to be satisfied:

  • You must be aged 55 or over
  • Your home must have been sold after 1 July 2018
  • You owned your home for 10 years or more
  • You made the downsizer contribution within 90 days of settlement
  • You have not previously made a downsizer contribution

Downsizer Contribution – Further Considerations

Contribution Limit

The maximum that can be contributed as a downsizer contribution is $300,000 per person. However, your total combined downsizer contributions cannot exceed the amount of the home sale proceeds. The home downsizer contribution will not count towards standard contribution caps and can be made even if your total superannuation balance exceeds $1.9 million transfer balance cap.

Sale Proceeds Amount

The sale proceeds that can be used to make a home downsizer contribution is based on the actual home sale proceeds received, as per the home sale contract. That is, the sale proceeds amount is not reduced by any outstanding debt, or any amount used to buy a replacement home. Also, there is no requirement for a replacement home to be bought in order to make a home downsizer contribution.

Age 55 or Over

You need to be aged 55 or over at the time the downsizer contribution is made. There is no maximum age limit.

Related article: Superannuation Retirement Rules

Home Sold After 1 July 2018

The downsizer contribution to super needs to be made using the proceeds from the sale of your home, where the contract for the sale of the home was entered into after 1 July 2018. There is no requirement to have bought a new home.

Home Owned for 10 Years

The home sold needs to have been owned within Australia and does not include a caravan, houseboat or other type of mobile home. If you are a member of a couple, you are eligible to each make a home downsizer contribution, regardless of whether the home sold was owned jointly, or by either one of you, solely.

Even if you rented the home for part of your ownership period, you are still eligible to make the full downsizer amount provided the home was at least partially exempt from CGT under the main residence exemption, or the home would have been exempt had it not been a pre-CGT asset (acquired prior to 20-September 1985).

Contribution Made 90 Days After Settlement

The contribution made to super with home sale proceeds needs to be made within 90-days of receiving the sale proceeds (usually referred to as the date of settlement). You do not need to contribute all of the home sale proceeds, but you can contribute any amount between $1 and $300,000. However, the contribution cannot exceed the proceeds from the sale of your home (before any debt repayments).

Not Previously Made a Home Downsizer

You can only make one home downsizer contribution in your lifetime. If you have previously made a home downsizer contribution, you cannot make another one. You are, however, allowed to make multiple downsizer contributions resulting from the one home sale, provided all contributions do not exceed $300,000 (or the home sale value) and all contributions are made within 90 days.

Downsizer Contribution Benefits

The benefit of making downsizer contributions to super is that more of your wealth will be invested within the tax-effective superannuation environment, the contribution will not count towards any super contribution caps and you are not restricted by upper-age limits in making the contribution.

The home downsizer contribution can be combined with your other super or pension balances to provide you with a tax-free income through retirement for longer.

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How To Make A Downsizer Contribution

To make a home downsizer contribution to super, you will need to complete a Downsizer Contribution into Super form offered by your super fund and submit it before, or at the time of making the contribution. This form should be able to be found on your super fund’s website, otherwise you should contact them and ask what needs to be done. Alternatively, you can use the ATO form.

If you only have an account based pension or do not have a super accumulation account, you will need to set up a new super account. Contact your existing super fund to see how this can be done, or speak to a financial planner to receive advice about a suitable super fund for your contribution.

If you have a self managed superannuation fund (SMSF), you will need to contact the accountant/administrator of your SMSF to see what needs to be done prior to making the contribution.

Related Article: Superannuation Tips

Downsizer Contribution Type and Tax

A downsizer contribution will be classified as a non-concessional contribution and therefore increase the tax-free component of your superannuation savings; however, it will not count towards your non-concessional contribution cap.

A tax deduction cannot be claimed in respect of a home downsizer contribution. The downsizer contribution will enter superannuation without incurring any superannuation contributions tax.

Downsizer Contribution Extension

You may be able to request an extension to the standard 90-day contribution timeframe if factors outside of your control have prohibited you from making the downsizer contribution. The extension must be requested within the initial 90-day period and an extension cannot be requested as a means to helping you reach age 55.

In certain circumstances, such as ill-health, moving home or a death in the family, you can apply for and receive an extension outside of the standard 90-day period.

Downsizer Contribution and Centrelink

Your home is usually exempt from Centrelink assessment. So, once you sell your home and contribute the proceeds to super using the home downsizer contribution rules, the amount contributed will become assessable for Centrelink purposes and may affect your Age Pension payments.

Specifically, the amount contributed to super will be counted as assessable assets under the Centrelink Assets Test and will be deemed to earn an income under the Centrelink Income Test.

Our financial planning firm, Toro Wealth, specialises solely in helping 50 to 70 year olds optimise their financial position in the lead up to retirement. If you’re interested in learning more about our service and cost, click here.

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