Downsizer Contributions: Boost Your Super with Property Proceeds
For older Australians, downsizer contributions offer a unique opportunity to enhance their retirement savings by contributing proceeds from the sale of an eligible property into superannuation. This guide outlines the eligibility criteria, strategic benefits, and important considerations for downsizer contributions.
What Are Downsizer Contributions
Downsizer contributions allow eligible individuals to contribute up to $300,000 per person, or $600,000 for couples, from the sale of a qualifying property into their super fund. These contributions form part of the tax-free component of the super balance, do not count towards the non-concessional contributions NCC cap, can be made regardless of the individual's total super balance TSB, and have no upper age limit for eligibility.
General Eligibility Rules
To make a downsizer contribution, individuals must meet all the following conditions:
- Age Requirement: Be aged 55 or older at the time of making the contribution.
- Qualifying Property: Dispose of a qualifying residential property in Australia e.g., house, unit, or apartment. Properties such as houseboats, caravans, or mobile homes are excluded.
- Ownership Period: Have owned the property for at least 10 years prior to disposal, with ownership by the individual, their spouse, or a deceased estate.
- Capital Gains Tax CGT: The proceeds from the sale must be exempt or partially exempt from CGT under the main residence exemption.
- Timing: Make the contribution within 90 days of receiving the sale proceeds usually settlement.
- Documentation: Provide the approved downsizer contribution form to the super fund before or at the time of contribution.
- First-time Contribution: Have not previously made a downsizer contribution.
Strategic Benefits of Downsizer Contributions
- Boosting Super Balances: A significant opportunity to increase retirement savings, particularly for individuals who have not maximised contributions in earlier years.
- Flexibility in Contribution Caps: Contributions do not count towards NCC caps, enabling additional super contributions under both downsizer and NCC rules.
- No TSB Restrictions: Contributions can be made even if the individual's TSB exceeds $1.9 million.
- No Requirement to Purchase Another Home: Individuals are not required to downsize or reinvest proceeds in another property, allowing flexibility in how funds are used.
- Re-contribution Strategy: A re-contribution strategy may reduce the taxable portion of the super balance, minimising tax on death benefits paid to nondependants.
Key Considerations
Impact on Social Security and Aged Care Assessments:
Super in the accumulation phase is exempt from means testing for individuals under Age Pension age. However, funds in the pension phase may affect entitlements.
Fund Acceptance:
Ensure the super fund’s trust deed allows downsizer contributions.
Couples’ Contributions:
Both spouses can contribute up to $300,000 each, provided the combined contributions do not exceed the property sale proceeds.
Retirement Phase Cap:
If your transfer balance cap is exceeded, contributions must remain in the accumulation phase, where earnings are taxed at 15%.
Example: Downsizer Contribution in Action
Scenario:
Bi`nh and Sui-Lee, aged 77 and 76, sell their home for $1.2 million after owning it for 12 years.
They each contribute $300,000 to their super funds ($600,000 total). These contributions are accepted despite their age and TSB exceeding $1.9 million.
Outcome:
Bi`nh and Sui-Lee boost their retirement savings and reduce taxable income outside of super without impacting their non-concessional contribution caps.
