Selling the family home after 1 July 2018? Consider downsizer super contributions

Following the significant changes to contributions caps on 1 July 2017 that came about as a result of super reform, the Government has now introduced a new contributions cap – the Downsizer Contributions Cap effective from 1 July 2018.

This new cap has been introduced by the Government to add an incentive for Australians aged 65 or over, to downsize their family home (main residence) by allowing them to contribute part or all of the sale proceeds as a tax free amount to their superannuation fund.

Basic eligibility requirements

The following eligibility criteria must be satisfied in order to utilise the downsizer cap:

  • At the time of the contribution, the individual is 65 or over.
  • The contract for sale must be entered into on or after 1 July 2018. Note it is specifically the contract date and not settlement date.
  • The contribution is funded from the proceeds of selling a qualifying dwelling that is either fully exempt or partially exempt from capital gains tax (CGT) under the main residence exemption.
  • The dwelling was owned by the individual or their spouse for at least 10 years prior to disposal.
  • The contributions must be made within 90 days of receiving the proceeds of sale, which is usually the date of settlement.
  • An election in the approved form is provided to the super fund either before or at the time of the contribution.
  • The individual has not previously made a downsizer contribution from the sale of a different main residence

A key advantage of the eligibility requirements is that the individual does not necessarily need to be the owner of the property (prior to sale) to be eligible as long as their spouse was the owner. E.g if an individual solely owned the property and at the time of disposal had a spouse, both the individual and their spouse would be able to utilise the cap (subject to the above criteria).

The Cap Amount

The downsizer contributions cap is $300,000 per individual, but the contribution amount must be the lesser of the cap amount or the total proceeds from the sale of the family home. E.g in the case of an individual and their spouse, if the home was sold for $500,000, each individual could only contribute $250,000 each under the downsizer cap.

How do these contributions interact with the other super rules?

This new cap is unique in that it operates without applying some of the other common restrictions for over 65s making contributions. For example – the individual does not need to satisfy the ‘work test’ requirements, they can still make these contributions if aged 75 or over, and the individual is not prevented from making this type of contribution if their total super balance is greater than $1.6 million.

However, once the contribution is in the super environment, it will count towards the individual’s total super balance. This may have an effect on the individual’s ability to make other contributions (e.g non-concessional contributions), so the order and timing of downsizer contributions must be considered carefully to ensure any benefit is maximised.

Further, there is no special treatment available for social security purposes if utilising the downsizer contribution cap. Once the downsizer contributions are within the superannuation environment, they will be fully asset tested and deemed for income test purposes. This may lead to a reduction or loss in social security entitlements and therefore must be carefully reviewed prior to making any contributions under the downsizer contribution cap.

General advice warning:  This publication is intended for information purposes only and is not financial advice. In preparing this document, we did not take into account your particular needs, financial situation or objectives. As such, before making any decision on the basis of this information, you should consider its appropriateness to your particular needs, financial situation or objectives.