The Australian Government has recently introduced measures that are intended to ease pressures on housing affordability. One of these measures is the downsizer contribution. The purpose of the downsizer contribution is to encourage older Australians into selling their homes and downsizing.

The downsizer contribution is available to people aged 65 or older, and who exchanged contracts for the sale of their home on or after 1 July 2018. In order to qualify for the downsizer contribution, the property being disposed of must satisfy the main residence requirement, and must have been owned by you, your spouse, or former spouse for the last 10 years. The contribution must also be made within 90 days of disposing of the property. There are also no requirements that have to be met regarding your living situation after a downsizer contribution is made.

The downsizer contribution is a non-concessional contribution of up to $300 000 per person (up to a maximum of $600 000) from the capital proceeds from the sale of the property. A downsizer contribution is counted towards neither the concessional or non-concessional caps. Although once a downsizer contribution has been made it counts towards your total superannuation balance, downsizer contributions can be made even if your super balance is above the general transfer balance cap. This is currently $1.6 million.

The downsizer contribution certainly has its advantages. The ability to transfer wealth into a tax preferred vehicle where the earnings are concessionally taxed is advantageous.

The downsizer contribution will not be for everyone, however. Downsizer contributions are not exempt from the Age Pension assets test. This means that depending on an individual’s particular circumstances, contributions made under this scheme may adversely affect pension entitlements. A downsizer contribution may also prevent you from making non-concessional contributions in the future.

The following two examples provided by the Commonwealth Government, which can be found at the link below, demonstrate how the downsizer contribution may be used to make contributions into superannuation.

Example 1 – George and Jane

George and Jane, both retired and aged 76 and 69, sell their home to move into more appropriate accommodation. The sale proceeds are $1.2 million. They can both make a non-concessional contribution into superannuation of $300,000 ($600,000 in total), even though Jane no longer satisfies the standard contribution work test and George is over 75. They can make these special contributions regardless of how much they already have in their accounts.

Example 2 – John and Sarah

John and Sarah, who are still working part-time at age 65, decide to sell the large family home after all the children move out. The sale proceeds are $1.4 million. They are both able to make a non-concessional contribution of $300,000 ($600,000 in total) into superannuation. This is regardless of how much they have in their accounts already. They may also be able to make additional contributions to their superannuation using the sale proceeds under standard contribution arrangements.

If you are considering whether a downsizer contribution may be right for you, it is important to seek professional advice. For more information, please do not hesitate to contact us.

More information can also be found at the following links:

https://www.budget.gov.au/2017-18/content/glossies/factsheets/html/HA_15.htm

https://static.treasury.gov.au/uploads/sites/1/2017/08/Post-passage_fact_sheet_-_Downsizer_.pdf