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Downsizer Contributions To Super
February 7, 2023
From 1 January 2023, those 55 and over can make a ‘downsizer’ contribution to superannuation.
Downsizer contributions are an excellent way to get money into superannuation quickly. And now that the age limit has reduced to 55 from 60, more people have an opportunity to use this strategy if it suits their needs.
What is a 'downsizer' contribution?
If you are aged 55 years or older, you can contribute $300,000 from the proceeds of the sale of your home to your superannuation fund
Downsizer contributions are excluded from the existing age test, work test, and the transfer balance threshold (but are limited by your transfer balance cap).
For couples, both members of a couple can take advantage of the concession for the same home. That is, if you and your spouse meet the other criteria, both of you can contribute up to $300,000 ($600,000 per couple). This is the case even if one of you did not have an ownership interest in the property that was sold (assuming they meet the other criteria).
Sale proceeds contributed to superannuation under this measure count towards the Age Pension assets test. Because a downsizer contribution can only be made once in a lifetime, it is important to ensure that this is the right option for you.
Let’s look at the eligibility criteria:
- You are 55 years or older (from 1 January 2023) at the time of making the contribution.
- The home was owned by you or your spouse for 10 years or more prior to the sale – the ownership period is generally calculated from the date of settlement of purchase to the date of settlement of sale.
- The home is in Australia and is not a caravan, houseboat, or other mobile home.
- The proceeds (capital gain or loss) from the sale of the home are either exempt or partially exempt from capital gains tax (CGT) under the main residence exemption, or would be entitled to such an exemption if the home was a post-CGT asset rather than a pre-CGT asset (acquired before 20 September 1985). Check with us if you are uncertain.
- You provide your super fund with the Downsizer contribution into super form (NAT 75073) either before or at the time of making the downsizer contribution.
- The downsizer contribution is made within 90 days of receiving the proceeds of sale, which is usually at the date of settlement.
- You have not previously made a downsizer contribution to super from the sale of another home or from the part sale of your home.
Do I have to buy another smaller home
The name ‘downsizer’ is a bit of a misnomer. To access this measure you do not have to buy another home once you have sold your existing home, and you are not required to buy a smaller home - you could buy a larger and more expensive one.
As expected, this year’s second Federal Budget had a strong focus on families, education, health and aged care, energy and affordable housing. From a superannuation perspective it has been a relatively quiet Budget but there were some welcome announcements that will benefit SMSF members funding their retirement. Please remember the following budget announcement are not yet law. Reducing the eligibility age for downsizer contributions The eligibility age to make downsizer contributions into superannuation is set to be reduced from 60 to 55 years of age. All other eligibility criteria will remain unchanged This change will provide a boost to the number of individuals eligible to make a one-off, post-tax contribution to their superannuation of up to $300,000, using the sale proceeds of their family home – regardless of their superannuation balance. Relaxing residency requirements for SMSFs Previously announced in the 2021/2022 Budget, the residency requirements applicable to SMSFs and small APRA funds were set to be relaxed through: The extension of the central management and control test “safe harbour” from two to five years, and The removal of the “active member” test – which would allow members who are temporarily absent from Australia to continue contributing to their SMSF. Both of these proposals had been slated to commence from 1 July 2022. The Government has confirmed that these changes, broadly aimed at allowing greater flexibility for SMSF members who are temporarily overseas, are still set to go ahead. However the start date for both measures has been deferred. Incentivising Pensioners to Downsize The current Centrelink asset test exemption for proceeds from the sale of a family home, intended for the purchase of a new home, will be extended from 12 months to 24 months. Additionally, for income test purposes, only the lower deeming rate (currently 0.25%) will apply to these exempted proceeds over the 24-month period. These changes will allow pensioners more time to purchase, build or renovate a new home before their pension is affected. Increased Commonwealth Seniors Health Card income threshold The Government has confirmed its commitment to increase the income threshold for Commonwealth Seniors Health Card eligibility from $61,284 to $90,000 for singles and from $98,054 to $144,000 (combined) for couples. This change will increase the number of individuals eligible to benefit from a Commonwealth Seniors Health Card. Freezing of deeming rates The Government has also confirmed that it will freeze the social security deeming rates at their current levels until 30 June 2024. This change will support older Australians who rely on income from deemed financial investments, as well as the pension, to deal with the rising cost of living.
Several key superannuation changes which may impact your ability to contribute to your SMSF, are set to take effect from 1 July 2022. These changes create opportunities for all SMSF members to grow their retirement savings.
Christmas Tax Questions The key to Christmas presents for your team is to keep the gift spontaneous, ad hoc, and from a tax perspective, below $300 per person.
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As expected, this year’s second Federal Budget had a strong focus on families, education, health and aged care, energy and affordable housing. From a superannuation perspective it has been a relatively quiet Budget but there were some welcome announcements that will benefit SMSF members funding their retirement. Please remember the following budget announcement are not yet law. Reducing the eligibility age for downsizer contributions The eligibility age to make downsizer contributions into superannuation is set to be reduced from 60 to 55 years of age. All other eligibility criteria will remain unchanged This change will provide a boost to the number of individuals eligible to make a one-off, post-tax contribution to their superannuation of up to $300,000, using the sale proceeds of their family home – regardless of their superannuation balance. Relaxing residency requirements for SMSFs Previously announced in the 2021/2022 Budget, the residency requirements applicable to SMSFs and small APRA funds were set to be relaxed through: The extension of the central management and control test “safe harbour” from two to five years, and The removal of the “active member” test – which would allow members who are temporarily absent from Australia to continue contributing to their SMSF. Both of these proposals had been slated to commence from 1 July 2022. The Government has confirmed that these changes, broadly aimed at allowing greater flexibility for SMSF members who are temporarily overseas, are still set to go ahead. However the start date for both measures has been deferred. Incentivising Pensioners to Downsize The current Centrelink asset test exemption for proceeds from the sale of a family home, intended for the purchase of a new home, will be extended from 12 months to 24 months. Additionally, for income test purposes, only the lower deeming rate (currently 0.25%) will apply to these exempted proceeds over the 24-month period. These changes will allow pensioners more time to purchase, build or renovate a new home before their pension is affected. Increased Commonwealth Seniors Health Card income threshold The Government has confirmed its commitment to increase the income threshold for Commonwealth Seniors Health Card eligibility from $61,284 to $90,000 for singles and from $98,054 to $144,000 (combined) for couples. This change will increase the number of individuals eligible to benefit from a Commonwealth Seniors Health Card. Freezing of deeming rates The Government has also confirmed that it will freeze the social security deeming rates at their current levels until 30 June 2024. This change will support older Australians who rely on income from deemed financial investments, as well as the pension, to deal with the rising cost of living.
Several key superannuation changes which may impact your ability to contribute to your SMSF, are set to take effect from 1 July 2022. These changes create opportunities for all SMSF members to grow their retirement savings.