Downsizer contribution

For many Australians, the family home is their largest asset outside super. Selling that home can create a rare opportunity to move a significant amount of wealth into the super system, even if you've already built substantial retirement savings.

The downsizer contribution allows eligible Australians aged 55 or older to contribute up to $300,000 each from the sale proceeds of a qualifying home. For couples, that can mean up to $600,000 moved into super from a single property sale.

Unlike many other contribution strategies, downsizer contributions can be made regardless of other contribution caps and restrictions that might apply to making voluntary contributions. Understanding the eligibility rules, contribution limits and timing requirements can help ensure the contribution is made correctly and fits into your broader retirement plans.

• Available to eligible Australians aged 55 or older.
• Up to $300,000 of eligible sale proceeds per person.
• Up to $600,000 of eligible sale proceeds per couple.
• Doesn't count towards before-tax or after-tax contribution caps.
• Generally, must be made within 90 days of settlement.
• May affect Centrelink income support entitlements such as the Age Pension.
• May impact future access to some super concessions (e.g. non-concessional contributions cap).

Most super contribution rules involve trade-offs. Contribution caps can limit how much you can contribute each year, while other rules may depend on your age, employment status or total super balance.

The downsizer contribution is different.

If you're eligible, you and your spouse may each contribute up to $300,000 from the sale proceeds of a qualifying home. Together, that may create an opportunity to move up to $600,000 of the super proceeds of a single property sale without using your before-tax or after-tax contribution caps.

For many Australians approaching retirement, it can be one of the largest single contributions they'll ever make to super.

A downsizer contribution is a one-off contribution to super made from the proceeds of selling a qualifying main residence.

Eligible Australians can contribute up to $300,000 each from the sale proceeds of their home. Unlike most other personal contributions, a downsizer contribution doesn't count towards your before-tax or after-tax contributions caps.

The contribution is designed to help older Australians move some of their wealth from the family home into the super system, where it can be invested to support income needs in retirement.

Downsizer contributions are commonly used by Australians aged 55 or older who are selling a qualifying home owned by them and / or their spouse.

Some people use the strategy when moving to a smaller property. Others may relocate closer to family, move to a regional area, transition into retirement living or simply decide their current home no longer suits their needs.

Importantly, you do not have to buy a smaller home or less expensive to be eligible. Eligibility depends on meeting the downsizer contribution rules, not on the value of the property (if any) that you purchase afterwards.

Most super contribution rules are linked to annual caps, work requirements or total super balance limits.

Downsizer contributions operate differently. They sit outside the standard contribution caps, don't require a work test and may still be available even if your super balance is already above thresholds that affect other contribution strategies.

That makes them one of the most flexible ways eligible Australians can add money to super later in life.

A downsizer contribution:

• Doesn't count towards your before-tax or after-tax contribution caps.
• Doesn't require you to satisfy a work test.
• Doesn't have an upper age limit.
• Isn't restricted by your total superannuation balance, which can limit some other contribution strategies.

While these rules make downsizer contributions unique, you still need to satisfy the eligibility requirements before making a contribution.

You are eligible to make a downsizer contribution to superannuation if you satisfy all of the following:

You must be aged 55 or older at the time you make the contribution.

There is no maximum age limit, which means eligible retirees may still be able to make a downsizer contribution later in life.

You, your spouse or your former spouse must have owned the property for at least 10 years immediately before the sale.

The ownership is generally measured from settlement date when the dwelling was acquired to the settlement date of the sale of the main residence. 

You may still be eligible to make a downsizer contribution in the following situations: 

• If ownership of the home changed between spouses during the 10 years before the sale (for example, following a relationship breakdown), you may still be eligible, provided the ownership requirements have been satisfied throughout the relevant period. 
• If a spouse who owned the home has passed away, the surviving spouse can count the deceased spouse’s period of ownership towards the 10-year ownership requirement. This includes any period during which the property was held by the deceased estate before being sold. 

Generally, the property must be a dwelling in Australia and cannot be a caravan, houseboat, or other mobile home. 

The property must also qualify, either fully or partially, for the main residence CGT exemption, or would qualify except for the fact that you, or your spouse, acquired it before 20 September 1985 (pre-CGT). 

If your spouse owns the home, it may still qualify for a downsizer contribution if you would have been eligible for the main residence exemption had you owned the property yourself. 

Properties owned by a company or trust do not qualify. Likewise, vacant land or an investment property that you have never lived in will generally not meet the requirements. 

You do not need to be living in the property when it is sold to qualify for a downsizer contribution. For example, a property that is rented out at the time of sale may still qualify if it was your main residence at some point during your ownership period and is eligible for at least a partial main residence CGT exemption.

Whether a property is your main residence depends on your individual circumstances. It's worth checking with your accountant or tax adviser to confirm whether your property qualifies.

The contribution generally needs to be made within 90 days of settlement.

You may not be able to make a downsizer contribution if you miss the deadline, so many people start preparing the required paperwork before settlement occurs. 

You may apply to the ATO for an extension of time if the downsizer contribution is delayed in limited circumstances. 

The downsizer contribution is generally a one-time opportunity.

If you've previously made a downsizer contribution from the sale of another home, you generally won't be eligible to make another one.

You need to give your super fund a Downsizer Contribution into Super form either before, or at the same time as, making your downsizer contribution. If you make more than one downsizer contribution in relation to the same qualifying home, whether to the same super fund or to different funds, you must complete a separate form for each contribution.

The maximum amount you can contribute depends on your circumstances and the proceeds from the sale of the property.

The contribution is limited to the lesser of:

• $300,000 per eligible person, or
• the amount of sale proceeds available. Where a couple are making downsizer contributions from the sale of one home, their combined downsizer contributions cannot exceed their sale proceeds.

Making a downsizer contribution involves more than simply transferring money into your account. The contribution needs to be correctly identified and reported so it receives the appropriate treatment.

Before making a downsizer contribution, confirm that you meet the eligibility requirements with your accountant or financial adviser.

If you're unsure whether the home qualifies, speak with your accountant or financial adviser before proceeding.

Download and complete the CFS Downsizer Contribution form.

The information provided on the form helps ensure the contribution is correctly classified as a downsizer contribution rather than another contribution type.

Arrange for the contribution to be transferred within the required timeframe following settlement.

Following the instructions on the form can help ensure the contribution is processed correctly and allocated to your account without unnecessary delays.

After the contribution has been processed, log in to FirstNet and confirm that it has been received and recorded correctly.

Checking early can help identify any issues while there is still time to investigate them.

A downsizer contribution can affect more than just your super balance.

Moving money from your home into the super environment may change how investment earnings are taxed, how retirement income is generated and how your assets are assessed under government support programs.

Super receives concessional tax treatment compared with many investments held outside super. Investment earnings within super are generally taxed at a maximum of 15% in your superannuation account or it is tax-free if in a retirement phase pension.

For some retirees, moving part of their wealth into super may create a more tax effective environment for future investment earnings, depending on their circumstances.

A larger super balance may provide additional flexibility when funding retirement.

Depending on your strategy, the money may remain invested within super or eventually support pension payments that help generate regular retirement income.

One important consideration is social security payments such as the age pension where your level of assessable assets and income affect your eligibility for, and rate of payment. 

Your principal home (including up to two hectares of adjacent land) is exempt from the assets test, regardless of its value and you are generally considered a homeowner for age pension assets test purposes. In contrast, once you reach Age Pension age, your superannuation is assessed as a financial asset and is subject to deeming for income test purposes. 

Superannuation used to commence an account-based pension is also generally assessed as a financial asset and is subject to deeming for income test purposes, regardless of your age. 

If you have used some of the proceeds from the sale of your home to make a downsizer contribution to super and have reached age pension age or have moved those contributed proceeds to an account-based pension, those funds effectively move from an assets-test-exempt investment (your home) to an assessable financial asset. 

As a result, a downsizer contribution could affect your age pension entitlements or future eligibility.

If you're receiving, or expect to receive, government benefits, consider speaking with Services Australia or a financial adviser before making a contribution.