Downsizer Contribution

What Is a Downsizer Contribution?

A downsizer contribution is a special type of contribution that allows eligible Australians aged 55 and over to contribute proceeds from the sale of their home into their superannuation fund. Introduced by the Australian Government on July 1, 2018, this scheme is designed to help older Australians boost their retirement savings while freeing up larger homes for younger families.

Key Features of a Downsizer Contribution

• Non-Concessional Contribution: Downsizer contributions do not count towards an individual’s annual non-concessional contribution caps.
• Contribution Limit: You can contribute up to $300,000 per person ($600,000 for a couple) from the sale of your primary residence.
• No Work Test or Age Limit: Unlike many other super contributions, the downsizer contribution is not subject to the work test and can be made even if you have already retired.
• No Total Super Balance Restriction: You can make a downsizer contribution even if your total super balance exceeds the usual $1.9 million transfer balance cap (as of 2023–24).
• One-Time Contribution: The scheme can only be used once per person and must be linked to the sale of an eligible property.

Eligibility Criteria for a Downsizer Contribution

To make a downsizer contribution, you must meet the following requirements:

1. Age Requirement: You must be aged 55 or older at the time of making the contribution. (Previously, the minimum age was 60 but was lowered to 55 from January 1, 2023.)
2. Property Ownership: The property you are selling must have been owned by you or your spouse for at least 10 years prior to the sale.
3. Main Residence Exemption: The home must be eligible for at least a partial exemption under the Capital Gains Tax (CGT) main residence rules.
4. Type of Property: The property must be located in Australia and cannot be a caravan, houseboat, or mobile home.
5. Timing of Contribution: The contribution must be made within 90 days of receiving the sale proceeds (typically settlement date).
6. Super Fund Notification: You must provide your super fund with the ‘Downsizer Contribution into Superannuation Form’ before or when making the contribution.

How a Downsizer Contribution Can Benefit You

• Boosts Retirement Savings: Allows retirees to increase their super balance beyond standard contribution caps.
• Tax Advantages: Earnings within superannuation are generally taxed at a concessional rate of 15%, and once transferred to a retirement income stream, the earnings and withdrawals are tax-free.
• Increases Retirement Income: Extra funds in super can generate a more stable income stream for retirement.
• Encourages Home Downsizing: Helps retirees move into smaller, more manageable properties while unlocking equity from their home.

Considerations and Potential Downsides

• Age Pension Impact: The contribution increases your super balance, which may affect your Age Pension eligibility under the assets test.
• Irreversible Contribution: Once the contribution is made, it cannot be withdrawn except under normal superannuation access conditions.
• Property Sale Timing: Contributions must be made within 90 days, requiring careful financial planning.
• Super Fund Rules: Not all super funds accept downsizer contributions, so it’s essential to check with your fund.

How to Make a Downsizer Contribution: Step-by-Step Guide

1. Check Eligibility: Ensure you meet all criteria, including age, property type, and ownership period.
2. Sell Your Home: Once your home is sold, track the settlement date.
3. Submit the Downsizer Contribution Form: Provide this to your super fund before or at the time of making the contribution.
4. Make the Contribution: Transfer up to $300,000 per individual into your super account.
5. Keep Records: Retain proof of sale and contribution details for tax and compliance purposes.

Frequently Asked Questions

1. Can I make a downsizer contribution if I buy another property?

Yes, the scheme does not require you to purchase another property. You can rent, buy a smaller home, or invest the remaining proceeds elsewhere.

2. Can both spouses contribute $300,000 each?

Yes, if both partners meet the eligibility criteria, they can contribute up to $600,000 in total, even if only one spouse legally owned the home.

3. Do I need to meet a work test to make a downsizer contribution?

No, unlike other voluntary super contributions, a downsizer contribution does not require you to be employed.

4. Can I use a downsizer contribution to exceed my super balance cap?

Yes, you can contribute even if your total super balance exceeds $1.9 million. However, it will still count towards the transfer balance cap when moving funds into a pension phase.

5. Are downsizer contributions tax-deductible?

No, downsizer contributions are non-deductible, but they benefit from concessional tax treatment within super.

Final Thoughts

The downsizer contribution is a valuable tool for Australians looking to maximize their retirement savings while simplifying their living situation. However, it’s important to weigh the potential impacts on pension eligibility, taxation, and long-term financial goals. Before making a downsizer contribution, consider speaking with a financial adviser or superannuation expert to ensure it aligns with your retirement strategy.