For individuals approaching retirement who have either already set their children free or are in the process of doing so, the concept of downsizing the family home to bolster retirement savings can be quite appealing.
This is where the concept of the “Downsizer contribution” comes into play. Interestingly, this strategy can also be equally effective for those with substantial super balances or those who have reached an age where other forms of contributions to superannuation are restricted.
The essence of the downsizer contribution lies in its ability to allow individuals to channel the proceeds from the sale of a property into their superannuation. Specifically, the strategy permits a person to contribute up to $300,000 to their superannuation, and additionally, if part of a couple, they may be able to jointly contribute up to $600,000 of the proceeds, even if only one of them was the property owner. Importantly the Downsizer can be made over and above the regular contribution rules.
One of the other aspects which distinguishes the downsizer contribution is that it can be make irrespective of your Total Super Balance (TSB). Other types of personal contributions are restricted once your TSB crosses the $1.9 million threshold (as of the previous 30 June). Additionally, there is no maximum age limit to when the Downsizer contribution can be made.
To qualify for the downsizer contribution, the following criteria need to be met:
- You must be 55 years old or older at the time of making the contribution (there is no maximum age limit).
- The home must have been owned by you or your spouse for a minimum of 10 years before its sale.
- The sale proceeds (capital gain or loss) from the home must be at least partly exempt from capital gains tax (CGT) due to the main residence exemption, or would have been if it wasn’t a pre-CGT asset (acquired before 20 September 1985).
- The downsizer contribution should be made within 90 days of receiving the sale proceeds.
- You haven’t made a downsizer contribution in the past.
- You are required to provide the downsizer contribution form to your super fund either before or at the time of making the contribution.
- The contribution amount cannot exceed the total proceeds from the sale of your home.
Consider the following examples to illustrate the concept:
John (76) and Edith (77) are married, each with member balances of $2 million in super as at the previous June 30.
John owned and lived in the property prior to meeting Edith but has been renting it out for the last ten plus years. Despite their ages and super balances, if John decides to sell the investment property for $800,000, both he and Edith could each make downsizer contributions of $300,000.
James (59) and Debra (55) plan to retire soon. To enhance their retirement savings, they sell their family home for $1,300,000 and move into their existing coastal rental property.
Assuming the meet the eligibility for the Downsizer, they could combine the use of the downsizer with other superannuation contribution rules such as the “Bring Forward provision” to top up their superannuation by $1,260,000 before retiring.
This example also underscores that one need not necessarily purchase another property to tap into the benefits of the Downsizer strategy.
Ultimately, the Downsizer contribution can serve as an effective tool for those aiming to bolster their superannuation savings by releasing some of the equity they have built in property.