Superannuation Downsizer Contributions: What You Need to Know

Did you know that older Australians who feel their homes are too big can sell their houses, move into smaller houses and put the excess into their super funds? This is only for people aged 55 years and above, with a home that has been their permanent residence for the last ten years or more. 

The seller can make a $300,000 non-concessional (after-tax) contribution to a super fund. If the seller is a couple selling a house, each person can contribute $300,000 (therefore $600,000). 

So, what should an older Australian consider when considering a superannuation downsizer contribution? We’ve broken down some important points and considerations below to simplify the decision.

#1: There Is No Age Limit Or ‘Work Test’

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The current work test for voluntary contributions by people aged 55-74 does not apply to this downsizing. The work test requires people in this age bracket to work for at least 40 hours in 30 days to be able to contribute to a super account. This arrangement allows people aged 75 years and over to contribute regardless of having worked or not.

#2: There Are No Conditions On Buying A New Home

There are no conditions on the type of home the seller will move into after selling the bigger house. It does not limit you to buying a smaller or cheaper home. The scheme does not mention what happens if the seller wants to move into another owned home or a home for the aged. The only condition is that an individual’s maximum contribution is $300,000.

#3: It Is Not Subject To The $1.9 Million Superannuation Balance Restriction

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There is a restriction on adding non-concessional after-tax contributions to superannuation accounts with more than $1.9 million balances. This regulation came into effect on 1 July 2023. This downsizing arrangement does not face these restrictions. This allows people with more than $1.9 million in accumulating and pension phases to add their contributions.

#4: Transfer Caps In The Retirement Phase Still Apply

There is a transfer cap of $1.9 million on contributions to super funds for income streams in the retirement phase. This means that a seller who has reached this cap will have to keep the contribution in the accumulation phase where it is not tax exempt, and a 15% applies to interest income.

#5: A Downsizing Contribution Form Must Be Submitted

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The ATO will oversee your superannuation downsizer contribution. It is required to verify that the person applying to do the downsizing has lived in the home for at least the last ten years.

A superannuation downsizer contribution form must be submitted before making the downsizing contribution. The funds will go into the super environment where the tax rate from interest earnings is pegged at 15% and zero-rated when the interest is rolled into a retirement income stream.

#6: Downsizing Will Affect Age Pension Tests

The seller will move money from an exempt asset (a home) into a non-exempt asset (the super fund) by downsizing. This means that the assets and income tests used to determine the eligibility for age pension and DVA benefits will apply. The super account balance is also assessed when determining eligibility for residential aged care and home care services.

By increasing the balance of the super account, the seller might be negatively assessed. A financial adviser should be consulted to give a clear picture of how the downsizing will affect a pensioner’s benefits.

#7: There Is A 90-day Timeframe

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Proceeds from a downsizing sale must be contributed to a super fund within 90 days of receiving them. This is the settlement date (when funds hit the account). This is a one-time opportunity, and the chance to contribute cannot be deferred to a later date.

#8: Transaction Costs Could Impact The Surplus

Transaction costs in selling a house include stamp duty and land taxes. These costs can be substantial if the property is in a prime area. The seller should consider how these costs will eat into the surplus and the costs of buying a new house. The surplus available to contribute to the fund may be substantially reduced, making the benefits of downsizing redundant.

Talk to Elliot Watson Financial Planning about Downsizer Contributions to Your Superannuation

Since the government’s downsizing scheme has implications for the age pension and related aged care benefits, it is crucial to seek advice from a professional financial consultant to safeguard your benefits.

Contact Elliot Watson Financial Planning for specialist superannuation advice and support rather than grappling with the implications alone. We can help you make a confident and informed decision about your financial future. Phone (02) 4038 1623 or email admin@elliotwatson.com.au today.

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The information (including taxation) in this article does not consider your personal circumstances and is of a general nature only – unless otherwise stated. You should not act on the information provided without first obtaining professional advice specific to your circumstances.