Are ‘downsizing’ contributions worth it?

From the 1st of January 2023, individuals over 55 in Australia are eligible to make a ‘downsizer’ money contribution towards their superannuation. But is it worth it?

Downsizer contributions have been promoted as a great way to make a cash injection into your superannuation quickly. Recently the Australian government has decreased the age limit on making downsizer contributions from 60 to 55. This means that more people now have the opportunity to use this strategy to increase their super balance.

What is a ‘downsizer’ super contribution?

A downsizer contribution is a contribution towards your super made out of the proceeds from the sale of your home. The contribution can be up to $300,000.

Downsizer contributions are excluded from the existing work test, age test and superannuation transfer balance thresholds (but are limited by your transfer balance cap).

For couples selling their home, both individuals can apply the concession for the same property. Ie if both you and your spouse meet the criteria for making a downsizer superannuation contribution, you can contribute $300,000 each ($600,000 in total). This applies even if only one member of the couple does not have an ownership interest in the property sold (if they meet the other criteria).

Under this measure, sale proceeds that are contributed towards superannuation count towards the Age Pension assets test.

Downsizer superannuation contributions can only be made once. It is hence[RH2]  important to make sure that this strategy is the right option for you and your net position.

Do I qualify to make this contribution?

Eligibility criteria for making downsizer superannuation contributions includes:

– Being 55 years or older (from the 1st of January 2023) at the time of making a downsizer superannuation contribution.
– The sold property was owned for at least 10 years (by you, your spouse or both) prior to the sale of the property. The ownership period is normally calculated from the settlement of purchase date to the settlement of sale date.
– The property sold is not mobile (not a caravan, mobile home or houseboat).
– The capital gain or loss from the sale of the property are exempt or partially exempt from Capital Gains Tax (CGT) under the main residence exemption, or would be entitled to the exemption if the property was a post-CGT asset rather than a pre-CGT asset (acquired before 20 September 1985). Check with MB Accounting and Business Services if you are uncertain.
– Providing your superannuation fund with a NAT 75073 form (Downsizer contribution into super form) either before or when you make a downsizer contribution to your superannuation fund.
– The contribution is made within 90 days of receiving the proceeds from the property sale (usually the date of settlement.
– You haven’t previously made a downsizer contribution to your superannuation from the sale of another property or from the part sale of your current property.

Do you have to buy another smaller home to quality?

The naming of this contribution as a ‘downsizer’ isn’t quite accurate. To qualify to make a downsizer contribution to your superannuation you do not have to purchase another home once you have sold your existing property, nor do you have to purchase a smaller home. In fact you can still qualify if you purchase a larger or more expensive property.

To learn more about managing your superannuation and voluntary ‘downsizing’ payments that you want to make into your superannuation, contact the team at MB Accounting and Business Services for expert advice and support.