Changes to Downsizer Contributions
One of the more popular changes to the superannuation laws in recent years has been the ability to make downsizer contributions. The measure is popular because it is available no matter how much you have in super already (whereas other non-concessional contributions can only be made where a person has total super of less than $1.7 million), and there is no upper age limit (for most other contributions, there is an upper age limit of 75).
Just to re-cap, a downsizer contribution enables a person to deposit up to $300,000 of the proceeds of the sale of their family home into a superannuation fund.
The $300,000 limit is per person, so, for example, you and your spouse can contribute up to $600,000. However, the contributions cannot exceed the proceeds of sale of the relevant property - if you and your spouse sold your family home for $500,000, then you could only contribute up to that amount between you. Furthermore, despite the name, you do not have to be actually downsizing. There is no requirement that you have to purchase another home, only that you have sold and you meet the other eligibility criteria:
- You owned your home (which is not a caravan, other mobile home or boat) for at least 10 years prior to the sale (and note that if your spouse did not own the home but lived in it and meets all the other requirements, they too can make a downsizer contribution)
- The proceeds are from the sale of a home that is at least partially exempt from capital gains tax because it was your main residence at some point
- The contribution is made within 90 days of settlement of the sale of the home
- You complete the required form and submit it to your fund on or before you make the contribution
- You meet the minimum age criteria detailed below
- You have not previously made a downsizer contribution
The recent change to the downsizer contributions rules is the reduction in the minimum age. When first introduced in 2018, the minimum age limit to make a downsizer contribution was 65. For contributions made between 1 July and 31 December 2022, the minimum age is 60. From 1 January 2023, the minimum age has dropped further, to 55.
Downsizer contributions are therefore potentially available to a wider range of people. However, notwithstanding the reduction in the minimum age to 55, it may be worth holding off on making a downsizer contribution at a relatively young age, even if you are eligible, remembering that only one downsizer contribution can be made in your lifetime. If you do have the proceeds from the sale of a home that you would like to put into super, and you are less than 75 and have less than $1.7 million in superannuation, then a non-concessional contribution may be able to be made instead. You could effectively save the downsizer contribution for a later time when you might be more than age 75 or have more than $1.7 million in super, and be unable to put money into superannuation in any other way.
If you would like to know whether a downsizer contribution could be right for you, speak to your financial adviser or accountant.
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