On 3 August 2022, the Government proposed to expand the Downsizer Super Scheme further by reducing the minimum eligibility age to 55. This announcement comes only one month after the age dropped from 65 to 60 on 1 July 2022.
About the Downsizer Super Scheme
Since 1 July 2018, older Australians approaching retirement have been able to make additional contributions into their super account of up to $300,000 from the sale proceeds of their family home. These contributions do not count towards the non-concessional caps (NCCs) and are not subject to ordinary eligibility rules.
Originally downsizer contributions were only available to those aged 65 and over but from 1 July 2022 the age dropped to 60 and potentially from 1 October 2022, the age could drop again to 55. 1 “The decision to downsize is one that is often made earlier in life than the current eligibility age. This proposal removes a key barrier for people in their 50s and early 60s who are ineligible for downsizer contributions,” says UniSuper chief executive Peter Chun. 2
This scheme was created to increase the availability of suitable housing for growing young Australian families by encouraging more older Australians to downsize to homes that better meet their needs. Downsizer contributions offer genuine flexibility to people who don’t need larger family homes. They can contribute the proceeds from the sale into super, outside the usual contribution caps. 2
Are you eligible to make a downsizer super contribution?
Below are the main criteria required to be eligible to make a downsizer contribution. To see the full details on the eligibility criteria, head to the ATO’s website.
- You’ve reached the eligible age at the time you make a downsizer contribution. Currently, this is 60 years old or older. (There’s no maximum age limit).
- Your home was owned by you or your spouse for at least 10 years.
- Your home is in Australia and is not a caravan, houseboat, or other mobile homes.
- The proceeds (capital gain or loss) from the sale of the home are either exempt or partially exempt from capital gains tax (CGT) under the main residence exemption.
- You provide your super fund with the Downsizer contribution into super form (NAT 75073) either before or at the time of making your downsizer contribution.
- You make your downsizer contribution within 90 days of receiving the proceeds of the sale, which is usually at the date of settlement.
- You have not previously made a downsizer contribution to your super from the sale of another home.
- All other eligibility requirements for downsizer contributions will remain unchanged. 3
How does the Downsizer Super Scheme affect you?
Over the years downsizer contributions have proved popular, with data in the Federal Budget 2021–22 indicating around 22,000 individuals have made downsizer contributions. 4
While the downsizer contribution age drop has been announced, you should not do anything until the bill passes legislation. When in doubt, speak to your financial advisor to make sure you understand the rules and regulations around the Downsizer Super Scheme.
A few things to keep in mind before downsizing are:
- Downsizer contributions are not tax deductible, so you can’t claim a deduction for your contribution in your income tax return.
- To be eligible to make a downsizer contribution, you must provide your super fund with the Downsizer contribution into superannuation form either before or at the time of making your downsizer contribution.
- The costs involved in selling a family home can be significant. Sales commissions, moving costs, high stamp duty and land taxes, if you purchase another home all, add up, so make sure you speak to your financial planner before deciding to downsize.
- Selling a large home and downsizing to a smaller property doesn’t always release much excess capital (particularly in a capital city), so do some careful calculations on how much you will have left to contribute to super prior to selling.
- Contributions must be made within 90 days of settlement. It’s the individual’s age at the time the contribution is made that is tested. This means that the date the contract of sale is exchanged or settled does not need to have been after the commencement date of the measure. 4
What to consider before making a downsizer super contribution
If you’re considering making a downsizer contribution, you should seek professional advice on how it will affect your particular situation before making a decision.
Even if you haven’t reached the eligible age requirement yet, this scheme is still something that you should keep in mind. If you’re in your 40s or early 50s, have you thought about what you will do when your children leave the nest? If you downsize naturally or move before reaching the eligibility age, this will restart the 10-year qualifying period.
This is a complex area and requires careful thought, particularly in relation to the potential impact on your Age Pension eligibility. For example, it might mean you receive only a part-rate Age Pension rather than a full-rate Age Pension due to the impact of the means test limits.
Carbon’s Wealth Management team are here to assist you. As superannuation specialists, our financial planners are experts in their field and have the experience and knowledge required to help you grow your personal wealth. Get in touch with our team today to discuss your options.