The Downsizer Contribution is available for Australians aged 65 years or older who are selling their home which was owned for 10 years or more. Up to $300,000 (per person) can be contributed into superannuation.
For some Australians, selling the family home can be great way to release built-up equity to pay for retirement living expenses or in-home support that will allow you to stay at home longer.
- The Downsizer Contribution provides the opportunity to make an additional superannuation contribution irrespective of age, employment status or total superannuation balance.
- Downsizing contributions are invested within the superannuation environment, and can take advantage of the lower tax rate levied on investment returns within the superannuation system. Earnings received on a superannuation balance are taxed at no more than 15%. If an individual then commences an allocated pension, the earnings will be tax free (subject to Transfer Balance Cap limits)
- Funds invested in superannuation can be accessed at any time as age 65 is a current condition of release.
You will be eligible to make a downsizer contribution to superannuation based on the following considerations:
- You must be 65 years old or over at the time you make a downsizer contribution (there is no maximum age limit).
- The amount you are contributing is from the proceeds of selling your home where the contract for sale (not the settlement date) must be entered into on or after 1 July 2018.
- The property must have been owned by the individual, ortheir spouse for 10 or more years just prior to disposal. This means the property is not required to be owned by both members of a couple.
- Your home is based in Australia and is not a caravan, houseboat or other mobile home.
- It’s important to note that the property does not need to be a current home. It can be an individual’s former home. The property must qualify for the main residence capital gains tax (CGT) exemption in whole or part. This means the property does not need to be a current home. It could be an individual’s former home which has been subsequently used as an investment property, or left vacant. As long as a property is eligible for at least a partial main residence CGT exemption, this property is able to satisfy this condition.
- The property can be a pre-CGT asset (purchased before 20 September 1985) if this pre-CGT property could qualify for whole or partial main residence CGT exemption if the property had been a CGT asset (ie if purchased after 19 September 1985).
- A choice must be made by the individual to treat a contribution as a downsizer contribution. This choice must be made in the approved form and given to the superannuation fund before or at the time the contribution is made. It is expected that this form will be similar to the ATO’s contributions for personal injury election form and the capital gains tax cap election form.
- You must make your downsizer contribution within 90 days of receiving the proceeds of sale, which is usually the date of settlement, with any extensions to be approved by the Commissioner of Taxation.
- You have not previously made a downsizer contribution to your superannuation from the sale of another home.
How it works
The total amount of downsizer contributions that can be made is the lesser of:
- $300,000 per individual, and
- The total proceeds received by an individual or their spouse from the sale of the property.
For example, if a qualifying property is sold for $200,000, then this is the maximum downsizer contribution permitted by an individual or able to be shared between the member and their spouse.
On the other hand, if this property is sold for $700,000, $300,000 will be the downsizer contribution cap for an individual. The spouse of the individual can also make $300,000 downsizer contribution and this is the case even if the spouse does not hold an ownership interest in this property.
To make a downsizer contribution, you will need to
- check the eligibility requirements for making a downsizer contribution
- confirm that your superannuation fund can accept downsizer contributions.
- complete the downsizer contribution form when making, or prior to making, the contribution. If you are eligible to make multiple downsizer contributions or wish to make downsizer contributions to different superannuation funds, you must provide a form for each contribution.
- confirm that you have met all the eligibility requirements.
- The total amount of downsizer contributions you (each individual) can make must not exceed $300,000.
- ensure that all downsizer contributions must be made to your superannuation fund within 90 days of receiving the proceeds of sale, usually the date of settlement.
- The costs involved in selling a family home can be substantial due to high stamp duty and land taxes, so if you are considering downsizing, you should carefully calculate this impact.
- Your superannuation balance (including downsizing contributions) or balances retained from the sale of the home are included in the Centrelink Assets and Income Test, which could affect the Age Pension, residential aged care and home care service eligibility and fees. The exemption for funds set aside for a new home purchase is no more than 12 months for Centrelink/DVA
- The $1.6 million Transfer Balance Cap applies on the amount of superannuation savings they can move into tax-exempt retirement phase income streams. If a person has reached their $1.6 million transfer balance cap, then any downsizing contribution made will need to remain in accumulation phase and will be subject to 15% tax on any earnings derived from the investments made from that contributions.
- Before accepting contributions under the downsizing scheme, superannuation funds require verification on behalf of the ATO that downsizing contributions are from the sale of a family home owned for more than 10 years.
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