ATO Releases New Guidelines For Downsizer Contributions

Individuals approaching retirement age may be considering downsizing their family home to top up their retirement nest egg. Effective from the 1st July 2018 a new superannuation contribution category was introduced for individuals wishing to contribute part or all of the proceeds of the sale of their family home to superannuation.

Where the contract of sale is dated on or after 1st July 2018, the new measure allows older Australians to make a ‘downsizer contribution’ to superannuation as long as: -

  • They are over 65 years old
  • The contribution is from the proceeds of selling their home (owned by themselves or their spouse 10 years or more prior to the sale) and the contract exchanged on or after July 1 2018
  • The contribution is made within 90 days of settlement
  • The home is in Australia and is not a caravan, houseboat or mobile home
  • The superannuation fund must receive a “Downsizer Contribution Into Super” form before or at the time of making the downsizer contribution
  • Only one downsizer contribution can be made (i.e. no previous downsizer contribution from the sale of another home) but it can be made in instalments within the 90-day limit
  • The proceeds of the sale of the home are exempt or partially exempt from Capital Gains Tax (CGT) under the main residence exemption

Eligible Contributions can be made up to a maximum of $300,000 and forms part of the member’s tax-free component held in the fund. The contribution is exempt from the Total Superannuation Balance limit of $1.6 million, but it still counts towards the Transfer Balance Cap (i.e. the limit on transferring funds from accumulation phase into the retirement phase).

Each spouse is eligible to make this downsizer contribution. This means that a couple selling their home for $500,000 could either contribute $250,000 each or split into $300,000 and $200,000.  Both parties need not be named on the title if all other eligibility requirements are met. 

Downsizer contributions are not tax deductible and will be taken into account for age pension eligibility. As this is a complex area, we advise you to seek our advice prior to making any decision regarding suitability of making a ’downsizer contribution’. Further information is also available on the ATO website.

This article forms part of our March 2019 Business Accelerator Magazine. Click HERE to download the latest edition or browse other articles below:-

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