Looking to Downsize? Everything you need to know about the new Super Downsizer Contributions

By Trevor Geffin

Summary

– People aged 65 and older will now be able to contribute proceeds from the sale of their home to super.

– You will be able to contribute up to $300,000 regardless of your age, work status or total superannuation balance.

– Downsizer contributions will be able to be made where the contract for sale of the dwelling is entered into on or after July 1, 2018.

– Downsizer contributions cannot be claimed as a tax deduction.

– At all times in the 10 years immediately before the disposal of the dwelling, you, or your spouse or ex-spouse must have held an interest in the dwelling or the land on which the dwelling was located.

– The downsizer contribution must be made within 90 days of the change in ownership occurring.

– The date the change of ownership occurs, or the later date allowed by the Commissioner, is commonly the settlement date.

– Downsizer contributions in relation to a single dwelling cannot exceed $300,000 per person (husband and wife).

– A downsizer contribution still counts under your $1,600,000  transfer balance cap if it is used to commence an income stream.

Example

Jason (67) and Helena (70) are retirees who decide to downsize. They sell their family home for $3.5 million and purchase a unit nearer the city for $2,500,000. After costs, they have $900,000 to invest.

Helena contributes $300,000 to her super, and Jason $300,000 to his under this downsizing provision. Neither of them needs to meet any work test and their existing superannuation balances do not impact their eligibility. 

Contributions and contributions caps

People aged 65 and older will now be able to contribute proceeds from the sale of their home to super. You will be able to contribute up to $300,000 regardless of your age, work status or total superannuation balance.

This new type of contribution will not be considered a concessional or non-concessional contribution, rather it will be its own class of contribution, a downsizer contribution.

Downsizer contributions will be able to be made where the contract for sale of the dwelling is entered into on or after July 1, 2018.

Note: Downsizer contributions cannot be claimed as a tax deduction.

Who can make a downsizer contribution?

To make a downsizer contribution, you must be 65 or older. The contribution must be equal to all, or part, of the capital proceeds from the sale of an interest in a dwelling held by you or your spouse.

If the you held the interest in the dwelling it must have qualified for a full or partial CGT main residence exemption, or would have were it not a pre-20 September 1985 asset.

If your spouse held the interest in the dwelling, it must have qualified for a full or partial CGT main residence exemption, had the you held the interest.

Lastly, the 10-year ownership rule must be met.

Warning: When the downsizer contribution was announced in the 2017 Budget, the Government stated that no work test, nor upper age restriction would apply. Such rules would be created by an alteration of the Superannuation Industry (Supervision) Regulations 1994. Such a change of the regulations has yet to occur.

 The 10-year ownership rule

At all times in the 10 years immediately before the disposal of the dwelling, you, or your  spouse or ex-spouse must have held an interest in the dwelling or the land on which the dwelling was located.

Where a previous dwelling was compulsorily acquired or destroyed and a replacement dwelling purchased under the exemption in section 118-147 of ITAA1997 is disposed of, the total ownership of both the original and replacement dwellings count towards the 10-year ownership rule.

Making the contribution

The downsizer contribution must be made within 90 days of the change in ownership occurring, subject to ATO Commissioner discretion to extend this time period. You can apply to the Commissioner to use their discretion and if you are unhappy with the result of the application, can appeal the decision. The Commissioner can also extend this time period without an application from the client.

If you choose to make the contribution a downsizer contribution, the contribution must be identified as a downsizer contribution by the you in the approved form. This notification must be provided to your fund at, or before, the time the contribution is made.

Note: The Explanatory Memorandum to the bill creating the downsizer contribution rules identified that the date the change of ownership occurs, or the later date allowed by the Commissioner, is commonly the settlement date. This is different to the usual date of disposal used for CGT purposes which is the date the contract for sale is entered.

The ATO’s website also indicates that the 90 day period will usually start at the date of settlement.

When no downsizer contribution can be made

No downsizer contribution can be made in relation to the disposal of a caravan, houseboat or other mobile home. Furthermore, no downsizer contribution can be made where you have made a previous downsizer contribution in relation to a different dwelling.

Tip

Multiple downsizer contributions can be made in relation to the sale of the one dwelling.

Downsizer cap

Downsizer contributions for a client in relation to a single dwelling cannot exceed $300,000.

Furthermore, the downsizer contribution you in relation to a dwelling cannot exceed the sum received by both you and your spouse less any previous downsizer contributions made in relation to that dwelling by either you or your spouse. Your spouse’s proceeds are only considered under this rule where they are received at the same time as yours (i.e. you and your spouse sell your interests in the dwelling at the same time).

In practice: The downsizer contributions made in relation to the disposal of a dwelling cannot exceed the proceeds received for that sale by you and your spouse

 Where a spouse’s estate disposes of the interest in the dwelling

If your estate disposed of their interest in a dwelling, it is treated as though the spouse owned it up until the disposal. This only applies where you and your spouse were married at the time the spouse died.

Transfer Balance Cap and Age Pension treatment

A downsizer contribution still counts under your transfer balance cap if it is used to commence an income stream. Furthermore, any contribution is still assessable under the Centrelink and DVA assets and income tests.