A downsizer update

Back on 1 July 2018, a new opportunity arose that allowed older Australians to make contributions to superannuation without meeting the normal age limits and other conditions required for making contributions.

The introduction of “downsizer contributions”, which allows older Australians to contribute up to $300,000 of the sales proceeds of an eligible dwelling to superannuation, has been a real hit.

In the first year of the scheme approximately $1bn of downsizer contributions were made. But this has increased significantly since then.

In her video address to the SMSF Association National Conference held in early 2022, the (then) Minister for Superannuation, Financial Services and the Digital Economy, Senator Jane Hume stated that $9.4bn of downsizer contributions have been made.

The ability for older Australians to channel additional money into superannuation has been a winner.

The original purpose behind introducing downsizer contributions was to help address Australia’s housing crisis by encouraging older Australians to downsize their accommodation and move to smaller homes.

Like most things in life, there are conditions attached to making downsizer contributions, including:

• The home must be situated in Australia, not be a caravan, houseboat, or mobile home, and have been owned by a contributor or their spouse for more than 10 years,
• The home must, at least for a part of time it was owned, been the contributor’s principal place of residence. That is, the sale must qualify for at least a partial exemption from capital gains tax,
• The contribution is made to superannuation within 90 days of receiving the sale proceeds,
• A written election notice is given to the superannuation fund, no later than when the contribution is made, informing the superannuation fund the contribution is a downsizer contribution,
• A downsizer contribution has not previously been made, and
• The contributor was aged 60 or over at the time of making their contribution.

The maximum downsizer contribution is $300,000 per person. Therefore, a couple could jointly contribute up to $600,000 of the sale proceeds of their home to superannuation.

When first introduced in July 2018, a person had to be aged 65 or older to be able to make a downsizer contribution.

From 1 July 2022, the minimum age was reduced to 60.

Legislation currently before the parliament will see the minimum age further reduce to 55.

Once passed, the amending legislation will take affect from the first day of the quarter following the legislation receiving Royal Assent.

If legislation receives Royal Assent by 31 December 2022, the reduced age limit will take effect from 1 January 2023.

The opportunity to contribute up to $300,000 of sale proceeds of a family home to superannuation is very attractive.

With a reduction in the qualifying age limit to 60, and hopefully a further reduction to 55, we will see more Australians having the opportunity to bolster their retirement savings.

However, even though the age limit for making downsizer contributions has reduced, the other conditions remain in place.

If planning to sell your family home and contribute surplus proceeds to superannuation, it is important to understand the conditions that need to be met for a downsizer contribution to be eligible.

In addition, for those receiving an income support benefit from the Government, including an age pension, be mindful that selling your family home and spending less on replacement accommodation, whether making a downsizer contribution or not, may result in a reduction of your income support benefit.

When considering downsizing, and potentially making additional contributions to superannuation it is important to seek appropriate financial advice before proceeding.