Seniors downsizing contributions to super
Downsizing the family home is often part of the longer-term financial plans for many older Australians. But did you know that you could consider investing the proceeds of the sale of your family home into your super – depending on your age and circumstances – as a Downsizing Contribution?
Updated 01 January 2023
From 01 January 2023, a rule change has opened the door for many more Australians to take advantage of Seniors Downsizing Contributions into super when they sell their home.
From this date, the eligible age to contribute up to $300,000 to your superannuation from the sale of your home reduced to 55 years of age (previously 60 years old from 01/07/2022 and 65 years old from 01/07/2018).
There are a number of eligibility requirements and restrictions, so in this blog article we'll look at Downsizing Contributions in detail.
Downsizing Contributions rules
- From 01 January 2023, individuals aged 55 years and over can make a personal superannuation contribution of up to $300,000 using proceeds from the sale of an eligible home*.
- The sold property must have been owned by you (or your spouse) for at least 10 years.
- Downsizing contributions are non-concessional contributions that do not count against other super contribution limits.
- Downsizing contributions are per person – that means together, you and your spouse can contribute up to $600,000 into super when you sell your home.
- Downsizing contributions must be made within 90 days of the disposal of the home – that is, 90 days from settlement date (not the contract date).
- It is a once-only application and cannot be used for any future sale of another main residence. Also, a downsizing contributions cannot exceed the total sale proceeds of the property.
- Subject to the $300,000 cap, an individual can make as many downsizing contributions as they wish. However, the contributions can only ever be made from the proceeds of one sale of a dwelling. This allows individuals to make contributions to different superannuation providers if they choose to do so.
*Eligible properties
To make a downsizing contribution, an individual or their spouse must have ‘disposed’ of an ‘ownership interest’ in a ‘dwelling’ they held just before the disposal and which is located in Australia.
The definition of the term ‘dwelling’ is modified to exclude caravans, houseboats, and other mobile homes. The effect of this modification is that a ‘dwelling’ includes:
- a unit of accommodation that:
- is a building or is contained in a building; and
- consists wholly or mainly of residential accommodation; and
- any land immediately under the unit of accommodation.
Frequently asked questions
Below we answer some of the more common questions around downsizing contributions.
Q: When does the age requirement apply?
A person must be aged 55 or older at the time of making the downsizing contribution. If the contract is signed when the person is still age 54, as long as they meet the required age when the actual contribution is made (within 90 days of the settlement date), they will be eligible to make the contribution.
Q: I own the property solely in my name. If I sold this property can my spouse also make a downsizer contribution using proceeds from the sale?
Yes. If the property disposed of was owned solely by an individual, that individual’s spouse who does not hold an ownership interest can also make a downsizer contribution, or have one made on their behalf, provided they meet all other requirements.
Q: If I am over age 67, or even over age 75, are you sure I can contribute proceeds even though I am not working?
There is no 40-hour work test required and there is no upper age limit for a person making the contribution. If the person meets the eligibility criteria, downsizing contributions can be made using proceeds from the sale of an eligible property.
Q: I am 62 years old, but my spouse is only 53 years old. Can we both make downsizing contributions following the sale of an eligible property?
The 62 year old person can make downsizing contribution, but the younger spouse cannot as he/she does not meet the age requirements. The younger spouse can, however, make contributions to super using other available strategies such as concessional or non-concessional contributions.
Q: Does a downsizing contribution impact the Aged Pension?
If you qualify, or are hoping to qualify for the Age Pension, the impact of selling an asset needs to be considered. The value of your main residence is excluded from the assets test, however if it is sold, and some of the proceeds added to your super, that value will then be assessed and may reduce your age pension benefits.
Q: How do I actually make a downsizing contribution and How does my super fund know the difference?
The ATO approved Downsizer contributions into superannuation form must be used when making the contribution into super under the downsizing rules. The form must be provided to the super fund trustees on or before the day the contribution is made.
Q: We own a property via our family trust and have owned it for 10+ years. Would this property be an eligible home?
No. If the property is owned in a trust or company structure, capital proceeds from the sale are not eligible proceeds for the downsizing rules.
Q: We have owned a property for 10+ years,but we only lived in it as our family home for the first 12 months. Since then, we have lived in another property and rented this one out. If we sold this property, would we be eligible to contribute sale proceeds under the downsizing rules?
The property being sold does not have to be the family home at the time of sale.
As long as the individual or couple has lived in the property at some point in the past and that property, upon sale, is eligible for at least a partial main residence Capital Gains Tax (CGT) exemption, then proceeds can be contributed to super under the downsizing rules (assuming all other eligibility criteria has been met).
For example, the property must have been owned continuously for at least 10 years prior to sale and the person has not previously made a downsizing contribution from the sale of another dwelling.
Q: If I die and my property is inherited by my spouse or another eligible beneficiary of my estate, can my spouse or beneficiary inherit the ownership period of that property?
Your spouse or the beneficiary will inherit the ownership period for that property. If the property meets the 10 year ownership test and your spouse or beneficiary meets the age requirements, your spouse or beneficiary could make a downsizing contribution upon the subsequent sale of the property.
Learn more about downsizing your home and upsizing your super?
If you would like to discuss a downsizing contributions strategy in more detail, Pat Kelly or Jenny Kitching – our expert Financial Advisers – would be happy to guide you through all your options.