Downsizer Superannuation Contributions

Downsizer contributions are an incentive for individuals over 65 years old to make a superannuation contribution if they sell their main residence.

The provisions come into effect on 1 July 2018, so for members intending to make downsizer contributions they can enter into a contract of sale from this date.

Broadly, an eligible downsizer contribution is where:

(1) the contribution is made to a complying super fund by a

member aged 65 years or older

(2) the amount is equal to all or part of the capital proceeds

received from the disposal of an ownership interest in a

dwelling that qualifies as a main residence in Australia

(3) the member or the member’s spouse had an interest in

the main residence before the disposal

(4) the interest in the main residence was held by:

a. the member

b. the member’s spouse

c. the member’s former spouse

d. a trustee of the estate of the member’s deceased spouse during the 10 years prior to the disposal, and

(5) the member has not previously made downsizer

contributions in relation to an earlier disposal of a main

residence.

Note: that a caravan, houseboat or other mobile home does not qualify as a main residence for these purposes.

On the sale of a main residence a member can make up to a maximum of $300,000 in contributions to their super fund. There is no age limit or gainful employment test that needs to be satisfied and the contributions do not count toward the member’s contribution caps in the financial year a downsizer contribution is made.

Tips and Traps:

If making a contribution to a SMSF, ensure the fund’s deed is able to accept this new type of contribution.

Centrelink entitlements could be impacted on the disposal of the main residence and the downsizer contribution.

The downsizer contribution cap is the lesser of $300,000 or the sum of the capital proceeds.

The cap is per member, so a couple could potentially contribute up to $600,000.

The home must have been owned for more than 10 years.

An individual making a downsizing contribution (from the sale of their principal place of residence) is not required to buy a new home after they sell their home.

In addition, people selling their home are not required to buy a cheaper or smaller home after making a downsizing contribution, and conversely, it may be possible to purchase a larger or more expensive replacement home.