Hien Hoang: 0448 012 728 and Brian Spurrell: 0412 011 946

Since 1st July 2018 qualifying older Australians who sell their home may qualify to make a super contribution up to $300,000 for a single person and $300,000 for each of a couple providing they were aged 65 and over.

According to the ATO this opportunity to transfer proceeds from the sale of your home into your super fund has been very popular, particularly amongst those who were either retired or approaching retirement and whose super fund balance was inadequate to fund a reasonable retirement.

The Good News

The name of the scheme is somewhat misleading as there is no requirement to actually downsize so participants may choose to buy a bigger home or even move into an existing property that they own, rent a home, or move into a retirement village or aged care facility.

There is no maximum age limit on making a contribution and no tax payable on the downsizer contributions.

Prior to the election of the Albanese government, legislation was passed to lower the eligible age to 60 as from 1st July 2022 which was good news for those preferring to sell their home before reaching the age of 65.

The big surprise that followed the election of the Albanese government was the passing of subsequent legislation reducing the eligible age to 55 years or older as from 1st January 2023.

The reasoning behind the rapid reduction of the eligible age from 65 years to 55 years was to provide greater flexibility for older Australians to contribute additional funds to their super fund and possibly to encourage them to downsize sooner to a home that better suits their needs thereby freeing up the stock of larger homes for younger families.

The Importance of timing the payment of contributions

According to the legislation, individuals have 90 days from the date of receiving the sale proceeds of their home to make a downsizer contribution. For those individuals aged 55-59 who received the proceeds from sale of their home prior to 1st January 2023 would not have been eligible unless they made their downsizer contributions during the 90 days period prior to 31st March 2023.

Other requirements to be satisfied

In addition to the above age requirement and the 90 day rule, the following requirements must also be considered and satisfied in order to make downsizer super contributions:

  • The ownership interest in the home which may be in the form of sole ownership, joint ownership, or tenancy- in- common, must have been held at all times during the 10 years prior to disposal by you or your spouse.
  • Any capital gain or loss from the disposal of the dwelling must have qualified for or would have qualified for the main residence CGT exemption in whole or in part, or would have qualified as a pre-CGT asset i.e. acquired before September 20th 1985.
  • Your super fund must be provided with a completed “Downsizer Contribution into Super” form at or before the contribution is made to your super fund.
  • You have not previously made a downsizer contribution, or had one made on your behalf to your super fund from the sale of another home.
  • The maximum amount of an individual’s contribution must be the lesser of either $300,000 or the proceeds from the sale of the interests in the dwelling.

Other issues to be aware of

  • You are not required to purchase another dwelling following the sale of the relevant dwelling interest in order to be eligible to make a downsizer contribution.
  • If your home that is sold is owned by one spouse, the spouse that did not have an ownership interest may also make a downsizer contribution, or have one made on their behalf, provided they meet all of the other requirements.
  • A downsizer contribution is neither a concessional (deductible) nor a non-concessional (non-deductible) contribution and is therefore not counted towards the current annual super contribution caps of $27,500 and $110,000 respectively and is also tax free .

Importance of seeking professional advice

The downsizer super contribution provisions are complex, and for many people should be considered even before attaining the age of 55 when the empty nest stage of family life may be relevant for the decision to downsize. Other issues may be relevant such as relocating and maybe even delaying the decision to sell up until the 10 year ownership requirement can be met.
Seeking professional advice is also very relevant for those who are approaching retirement or age or pension age which may trigger the need to consider downsizing or relocating.

There may also be eligibility for the age pension issues to be weighed up given an increased super pension resulting from downsizer super contributions would be taken into account in determining eligibility for either a full pension or part pension whereas if you continue owning your main residence, it will not be included in the Centrelink asset test.

The content of this article is not intended to be used as professional advice and should not be used as such.
Brian Spurrell B.Com. BA, FCPA, Registered Tax Agent, is Director of Personalised Taxation & Accounting Services Pty Ltd. PO Box 143 Warrandyte 3113.
Ph: 0412 011 946
Email: bspurrell@ptasaccountants.com.au
Web: www.ptasaccountants.com.au