Many retirees find they want a smaller home, or a home more suited to their empty-nest requirements. For some, selling the family home can be great way to release built-up equity to pay for retirement living expenses or in-home support that will allow them to stay at home longer. 

To help retirees achieve this and to encourage people to free up larger homes for larger families with out the need for further new constructions, the government has now introduced this new type of contribution as and incentive.

What is a Downsizer Contribution?

From 1 July 2018, those Australians tax residents who are 65 years or older and meet the eligibility requirements may be able to choose to make a one-off downsizer contribution into their superannuation fund of up to $300,000 from the proceeds of selling their home.  If the house is home to a couple, then each of them can contribute to the maximum, so up to $600,000 per couple.

Downsizer Contribution for retireesWhat are the Eligibility Rules for making a Downsizers Contribution?

  • You must be 65 years or older but there is no upper age limit
  • The amount you are contributing must be from the proceeds of selling your home where the contract of sale was dated on or after 1 July 2018
  • The full $300,000 does not need to be contributed in one large deposit, it can be done via multiple deposits if the total does not exceed $300,000 per spouseeach
  • The contribution must be made within 90 days of settlement
  • Your ‘home’ cannot be a caravan, houseboat or other mobile home
  • You must provide your superannuation fund with a downsizer form to notify them of the type of contribution before or on the day of making the contribution
  • The contribution must be made within 90 days of settlement
  • There is no requirement for the member to purchase another home (i.e. downsize) after selling the family home to be eligible to use the downsizers rule. For example: they could be moving in with a family member, to assisted accommodation or going on a never-ending world cruise.
  • You cannot have previously made a downsizers contribution from the sale of a previous home. Even if your $300,000 limit was not fully use with the first house.
  • You need to have owned the home for a minimum of 10 years and during that time, it must have been your main residence for at least part of the 10 years i.e.  you do not need to have lived in the home for the entire 10 years.

NB; if when the home is sold, it was only held in the name of one spouse, the second spouse may still use this rule to contribute from the proceeds.  This still applies if the second spouse was not a spouse for the full ten-year period

How does this affect my Government Age Pension Entitlements?

You should seek advice from a licenced financial planner or from Centrelink in relation to how this type of contribution will affect your personal situation in relation to Government payments.  

While the value of a person’s Home is means test exempt for Centrelink purposes, the value of their superannuation interests, both in accumulation and pension phase, are not exempt when determining eligibility for the Age pension.

Centrelink rules currently give pensioners who sell their principal residence a 12-month exemption under the assets test for the Age Pension, but there is no grace period for downsizer super contribution.

It is also worth noting that your super balance (including downsizing contributions), is also used to determine eligibility for residential aged care and home care services.

Other things to note are:

  • The contribution is not taxed as it goes into the fund,
  • The amount of the contributions will not reduce your ability to contribute other types of contributions during that year if you are eligible to do so.  E.g. the $25,000 tax deductible (Concessional) and the $100,000 of after-tax contributions (non-concessional).
  • The downsizers contribution can still be made even if the contributor already has a superannuation balance over the new $1.6m cap.
  • All other contribution types have age limits, this type has no age restrictions
  • With other contributions, if you are over 65 years of age then you must be able to pass a work test to contribute to super – no such test is applicable on this type of contribution