From 1 July 2018, eligible people who sell their main residence may contribute up to $300,000 of the sale proceeds to super without being constrained by the usual restrictions that otherwise apply to contributions, including age limits and contribution caps.
Contributions made to super under this arrangement are referred to as ‘downsizer contributions’ and are subject to specific rules. Downsizer contributions are treated separately to concessional and non-concessional contributions.
How it works?
To be eligible to make downsizer contributions, several conditions need to be met, including:
- Contributions can only be made by a person aged 55 or over,
- The contributions arise from the sale of a residence that has, at some or all of the time of its ownership, qualified as the person’s main residence for capital gains tax purposes,
- The residence has been owned by the person and/or their spouse for at least 10 years,
- The contribution of up to $300,000 is made from the sale proceeds of the residence within 90 days of change of ownership (settlement),
- The contract for sale of the property was entered into on or after 1 July 2018,
- An election to make a downsizer contribution is made in the approved form, and
- The person has not previously made a downsizer contribution.
To qualify as a downsizer contribution, the sale proceeds from which the contribution is to be made must be in respect of the sale of a property that has, at some time during its ownership, qualified for a capital gains tax exemption as the person’s, or their spouse’s main residence.
Therefore, the sale proceeds from the sale of a commercial property, or an investment property that has never qualified for the main residence capital gains tax exemption, do not qualify as a downsizer contribution.
Furthermore, a qualifying residence does not include a houseboat, caravan, or mobile home.
How are contributions treated?
A downsizer contribution will be treated as part of the contributor’s tax-free component of their superannuation. Therefore, it will not be subject to tax at the time the contribution is made to the super fund.
As downsizer contributions are not treated as non-concessional contributions, the restrictions applying to non-concessional contributions, including an age limit and total superannuation balance, do not apply.
Downsizer contributions count towards a person’s total superannuation balance. This may impact on their ability to make future non-concessional contributions and receive other Government benefits such as the Government co-contribution and a tax offset for contributions they may make for an eligible spouse.
There are many rules and limitations to take into consideration including Transfer Balance Caps and taxation. You also need to consider how it will affect social security. The best way to understand the whole situation is to speak with professionals who are experts in the area.
Our network of qualified Financial Advisers are here to help as part of the team, so if you’re keen to find out more, please reach out and we can put you in touch with someone who can assist.
“The information contained in this document does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions. Whilst all care has been taken in the preparation of this document (using sources believed to be reliable and accurate), to the maximum extent permitted by law, no person including Centrepoint Alliance Limited or any member of the Centrepoint Alliance Group of companies accepts responsibility for any loss suffered by any person arising from reliance on this information.”