Downsizer Contributions: A Smart Route To Boost Super

If a property sale after the age of 55 leaves you with surplus cash to invest, superannuation is often the most tax efficient home for that money. Downsizer contributions are particularly useful for many older Australians; however the rules are very specific. Here’s what you need to know to decide if it suits you. 

What is a downsizer contribution?  

A downsizer contribution lets eligible people contribute up to the lesser of the sale proceeds or $300,000 into super from the sale of a qualifying home. Couples can contribute up to $600,000 between them. Unlike standard nonconcessional contributions, there’s no total super balance test and no upper age limit so it can be attractive if you’re over normal contribution cutoffs. 

Who qualifies? To be eligible the property must: 

• have been owned by you or your spouse for a continuous period of at least 10 years; and
• have qualified, at least in part, for the CGT main residence exemption (properties purchased before 20 September 1985 generally qualify). 

The property must have been your main residence at some stage, though it doesn’t need to have been your home at the time of sale. Each contribution must be made within 90 days of settlement, and each person has only one opportunity to use the downsizer concession. 

You don’t need to downsize into a smaller home to qualify and could buy another house, rent, move into aged care, or even sell a former main residence while still living elsewhere. A spouse not on title may still be eligible, provided they meet residency and ownership requirements. 

Pros and practical benefits 

• Accessibility: Can be used regardless of age or existing super balance.
• Tax efficiency: Money in super benefits from lower tax rates and potential taxfree treatment in retirement.
• Estate planning: Contributing to super can provide additional flexibility for retirement income and legacy planning. 

A downsizer contribution can carry unintended consequences to be mindful of: 

• Pension and meanstest impacts: For Age Pension recipients, the family home is exempt but super is assessed under the assets and income test. Moving sale proceeds into super may reduce or eliminate pension entitlements.
• Commonwealth Seniors Health Card: Starting a pension from downsizer funds can affect eligibility for concessions if deemed income thresholds are exceeded. 
• Irrevocability and timing: You only get one downsizer contribution to use. Using it now prevents using it again after a later sale that might be more valuable or better timed for your position relative to contribution caps. A downsizer contribution also increases your total super balance and may limit future nonconcessional contribution opportunities if it pushes you above transfer balance caps. 

A downsizer contribution can be a powerful tool to move property sale proceeds into the lowtax environment of super, especially where you’re otherwise ineligible to contribute due to age or having too much in super. 

If you’re selling a property that was your home which you (or your spouse) owned for at least 10 years and end up with surplus cash to invest, then super may be the way to go, but only if it works for you. If you would like to discuss the implications and weigh the tax consequences of making a downsizer contribution, please contact your Wealth Adviser at Hewison Private Wealth.