The downsizer contribution can be used to build up the balance in superannuation.

Why make this Contribution?

This can be useful for those who cannot make contributions because of age (no maximum applies), do not meet the work test (40 hours in 30 days), or may have a super balance of more than $1.6m.

Because there are so few restrictions, it allows more capital to be in super, where earnings are not taxed below $1.6m of capital and any pension paid from the funds is tax free to the member on up to $1.6m of capital.   If the earning rate is 5% the tax benefit is significant.   (Yes – 5% is possible!).

Qualifying Requirements

The requirements are:

- The person entered into a contract to sell their home after 1 July 2018

- The home must be in Australia

- The person must have owned the home for at least 10 years and be exempt or partially exempt from CGT

- The person must be at least 65 at the time the contribution is made, and there is no age limit

- The contribution must be made within 90 days of settlement

- The limit per person is $300,000, and can only be made on a once-only basis and on one main residence.   If the whole amount is not used any balance is lost.

How does the Super Fund treat the Contribution?

It is not taxable even if the person's super balance exceeds the cap of $1.6m at the time of contribution.   However, once contributed it adds to the total super balance and if it then exceeds $1.6m, they may not be able to make additional non-concessional contributions.

Election

Download the form from the ATO website and complete it.   If the election is not made the ATO could assess the amount at the rate of 45% as a non-concessional contribution.

Centrelink

The asset test excludes the main residence, but when contributed to super the contribution is then included in Assets.   This can reduce the age pension paid, which is a disincentive for downsizer contributions.

Replacement Home?

There is no requirement to move into a smaller home, nor any home at all.