Are you looking to enhance your superannuation balance as you approach retirement?
In simple terms, the downsizer contribution rules are designed to enable older Australians to sell their current home and allocate the proceeds to their super account.
Starting from 1 January 2023, new regulations have reduced the minimum eligibility age, allowing individuals aged 55 and above to access downsizer contributions. Previously, the minimum age was 65, but this has been gradually lowered to 55.
The new age limit of 55 years is determined by your age at the time of making the contribution, and there is no upper age limit. Typically, once you reach 75 years, superannuation regulations prevent you from making voluntary contributions, making the downsizer contribution a unique opportunity to enhance your superannuation.
There is no requirement to work in order to make a downsizer contribution, and you do not need to have ever been employed. However, it is important to note that you cannot claim a tax deduction for a downsizer contribution.
Contribution Limits
Under the downsizer rules, you can contribute up to $300,000 ($600,000 for couples) from the sale proceeds of your eligible family home. The contribution limit is capped at the lesser of $300,000 and the gross actual sale proceeds. This means if you gift your home to a family member resulting in sale proceeds of $0, you will not be able to contribute.
Any debt or remaining mortgage on the property does not affect the amount you are allowed to contribute to your super account.
Eligible Homes
While the downsizer rules offer valuable benefits, it’s crucial to ensure your home meets eligibility criteria before selling.
The key requirements are as follows:
- You must have owned your property continuously for at least 10 years, typically measured from the original settlement date when you purchased the property to the settlement date when you sell it.
- The property sold must have been your family home (primary residence) at the time of sale, or it must be partially exempt from capital gains tax (CGT) under the principal residence exemption.
- The home you sell must be located in Australia.
Certain properties are not eligible under the downsizer rules. This includes investment properties where you have not resided, caravans, houseboats, and other mobile homes. Additionally, vacant land is also ineligible.
If you sell your home and intend to make a downsizer contribution, you are not obliged to purchase a new home with the sale proceeds. There is no requirement to buy a less expensive or smaller property after making your downsizer contribution, so you can even opt for a more costly replacement home if you wish.
Caution
Be mindful that the costs associated with selling a family home can be significant. If you decide to buy another property, expenses such as sales commissions, moving costs, stamp duty, and land taxes can accumulate, so it’s essential to carefully consider your decision to downsize. Keep in mind that selling a large home and transitioning to a smaller property may not always result in substantial excess capital, especially in major cities. Therefore, it’s crucial to accurately calculate how much you will have left available to contribute to your super before proceeding with the sale.
For more detailed guidance on superannuation, visit our Superannuation FAQ.