Australians over 60 are getting ready for the upcoming changes to super. Expected to become law from 1 July 2022, these changes will make them eligible to make a tax-free super contribution from the proceeds of selling their home to downsize.

What is a Downsizer Contribution?

Since 1 July 2018, eligible Australians aged 65 or older have been able to make contributions into their super account of up to $300,000 from the proceeds of selling their home. The name applied to this is the ‘Downsizer Contribution’.

What are the proposed changes?

In the 2021-22 Federal Budget, the Government proposed extending the scheme to Australians aged 60 and over. This means more people approaching retirement may be able to benefit from the Downsizer Contribution rules in the future. The change is expected to become law from July 1 next year.

5 financial benefits of downsizing

Even if you’re not ready to retire, here are 5 benefits of downsizing the family home to consider.

1. Top up your super, tax-free

Downsizer Contributions provide an ideal opportunity for a tax-free top-up of your savings to provide extra income in later years, even if you’re just starting to think about retiring. Because the contribution adds to the tax-free portion of your super account, you can withdraw it tax-free later on.

2. No annual caps

While there is a $300,000 limit per person, Downsizer Contributions don’t count towards any of the concessional or non-concessional caps and can still be made even if you have total super savings greater than $1.7 million.

3. Work tests or age limits don’t apply

Downsizer Contributions allow you to contribute more to your super once you’ve retired. That’s because existing work tests and age limits that restrict contributions to super (notably for those aged 67 or over) don’t apply to Downsizer Contributions. And if you’re 75 or over, you can no longer make voluntary contributions, making the Downsizer Contribution even more beneficial.

4. There’s no obligation to buy a new home

Making a Downsizer Contribution is not subject to you buying a new home. So, if you want to become a ‘grey nomad’ and buy a van to tour in or move into the granny flat on your adult child’s property, there’s nothing stopping you.

5. Each member of a couple can contribute

The maximum amount allowable per person as a Downsizer Contribution is $300,000 from the proceeds of selling your home. This means if you own your home with your spouse or partner, both of you can take advantage of it – up to $600,000 of contributions can be included. However, the property sale price is key here, as your combined Downsizer Contributions cannot be greater than the total proceeds of the sale of your home.

A few important considerations

• The home must have been your primary residence at some time prior to the sale.
• Your home must have been owned by you or your spouse for the 10 years (or more) immediately prior to the sale.
• Your home must be in Australia and cannot be a caravan, houseboat or mobile home.
• You can only make a Downsizer Contribution from the sale proceeds of one home.
• Your Downsizer Contribution must be made within 90 days of the time the change of ownership occurs (usually coincides with settlement). 
• Downsizer Contributions aren’t tax deductible.
• Downsizer Contributions will be taken into account when determining your eligibility for the Age Pension.

To view the complete list of eligibility requirements, visit the Australian Taxation Office (ATO) website.

Information in this article is of a general nature only. As everyone’s circumstances are unique, it’s best to seek professional financial advice.