Downsizer contributions: what are the rules?
In the first year since older Australians have been allowed to make downsizer contributions, 4,246 people have contributed a total of $1 billion in downsizer contributions to their super funds (1 July 2018 – 1 July 2019).
This not only allows retired people to have access to more money to fund their retirement, it’s also likely to have freed up new property for sale for first home buyers and young investors.
Although this is good news for people who have benefited from this scheme, some people have reportedly missed out because they didn’t understand the eligibility criteria.
Here’s a summary of the rules around making downsizer contributions:
- You need to be 65 or over at the time of making the contribution.
- You or your spouse need to have owned your home for more than 10 years prior to the sale.
- You don’t need to be working.
- Both you and your spouse can make a concessional downsizer contribution of $300,000 each if you both lived in the property at some point in time and the proceeds of the sale are exempt or partially exempt from capital gains tax (CGT) under the main residence exemption or because you bought the property before 20 September 1985. If only you lived in the property at some point in time then only you, not your spouse, can make a downsizer contribution (as long as you meet all other conditions).An investment property that you haven’t lived in is not eligible.
- Houseboats, caravans or mobile homes are not eligible.
- The total super balance test of $1.6 million and the $100,000 non-concessional contributions cap restrictions don’t apply.
- You need to make all downsizer contributions within 90 days of receiving the proceeds of sale, usually the date of settlement.
- You can only downsize once.
- You don’t need to buy another property to use the scheme.
If you sell your home and put some of the proceeds into super, you need to consider how this will affect your Centrelink benefits. Your super balance is counted towards the means test so you could potentially lose some, or all, of your Centrelink benefit if your super balance goes up.