The kids have moved out, the garden takes all weekend, and the stairs aren’t getting any easier. Plenty of long-time Northern Beaches homeowners are thinking about selling the family home and moving somewhere smaller.
If that’s you, there’s a super rule worth knowing about before you sign anything: the downsizer contribution.
What is a downsizer contribution?
It lets eligible people aged 55 or older put up to $300,000 from the sale of their home into super. A couple can contribute up to $600,000 between them.
The big advantage is that it doesn’t count towards your concessional or non-concessional contribution caps. That’s useful for people who would otherwise struggle to get much money into super later in life. Once inside super, investment earnings are taxed at no more than 15%, and can be tax-free once you move into a retirement income stream (within limits).
Despite the name, you don’t have to buy a smaller home. You don’t have to buy another home at all.
Who’s eligible?
You need to meet all of these conditions:
- You’re 55 or older when you make the contribution. There’s no upper age limit and no work test.
- You or your spouse owned the home for at least 10 years.
- The sale qualifies at least partly for the main residence CGT exemption.
- You make the contribution within 90 days of receiving the proceeds, which is usually settlement day.
- You give your super fund the ATO’s Downsizer contribution into super form before or at the time you contribute.
- You haven’t made a downsizer contribution before. It’s a once-in-a-lifetime opportunity.
Your spouse can also make a downsizer contribution even if they weren’t on the title, as long as the other conditions are met.
Traps to watch for
- The Age Pension assets test. Your home is exempt from the assets test, but money in super generally isn’t once you reach Age Pension age. Moving sale proceeds into super can reduce or remove a pension entitlement.
- It isn’t tax deductible. It’s a top-up to your retirement savings, not a way to reduce this year’s tax.
- The 90-day deadline is easy to miss. Settlement, moving and buying a new place all happen at once. Check that your fund can accept the contribution well before settlement.
- You only get one go. Think about timing, how much to contribute and which spouse contributes before you act.
Plan before you list
The best time to think about a downsizer contribution is before the property goes on the market, not after settlement. It’s also a good moment to check who would receive your super if something happened to you, because super doesn’t automatically follow your Will. We cover that in Part 3 of our weekly Insights series.
Thinking about selling the family home? Get in touch with our team in Dee Why to talk through the tax and super side before you sign.
This article is general information only and isn’t personal tax or financial product advice. Whether a downsizer contribution suits you depends on your circumstances, so please seek advice from us and a licensed financial adviser before acting.
