Unpacking the Downsizer Contribution Scheme
Date Posted: May 5, 2021
According to a Financial Review story in mid-2019, more than 50% of Australians over 66 were classed “self-funded retirees”. If you are in this category, with income and assets too high to access the age pension, you may be experiencing sleepless nights when it comes to your finances and future planning.
Recent data from financial institution MLC shows that one-third of 60 to 65-year-olds are retiring with a mortgage and an increasing number of these retirees are downsizing to free up equity in their homes and pay off some of this debt.
Luckily, the Federal Government is heavily committed to this push towards downsizing. Since July 2018 the aptly named Downsizer Contribution Scheme has provided over 65s with opportunities to contribute up to $300k (or $600k for couples) from the sale of their home straight into their superannuation fund. This one-time offer allows retirees to capitalise on a potentially lucrative tax benefit and boost their savings to enjoy the retirement that they’ve worked so hard to earn.
Here are some quick facts about the Downsizer Contribution Scheme:
The downsizer contribution can still be made even if you have a total super balance greater than $1.6 million.
- You can only access the downsizer scheme once. This means you can only make downsizing contributions for the sale or disposal of one home, including the sale of a part interest in a home. You can’t access the downsizer scheme again where there is a subsequent sale or disposal.
- Downsizer contributions are not tax deductible and will be taken into account for determining eligibility for the age pension.
- If you sell your home, are eligible and choose to make a downsizer contribution, there is no requirement for you to purchase another home.
You will be eligible to make a downsizer contribution to super if you can answer yes to all of the following:
- you are 65 years old or older at the time you make a downsizer contribution (there is no maximum age limit)
- the amount you are contributing is from the proceeds of selling your home where the contract of sale exchanged on or after 1 July 2018
- your 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
- your 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 CGT rather than a pre-CGT (acquired before 20 September 1985) asset
- you have provided your super fund with the Downsizer contribution into super form either before or at the time of making your downsizer contribution
- you make your downsizer contribution 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 your super from the sale of another home.
To find out more about the Downsizer Contribution Scheme and your eligibility, click here.
Apart from a host of social and emotional benefits, the monetary upside to downsizing may offer a financial safety blanket as you plan your retirement.
The contents do not constitute legal or financial advice, are not intended to be a substitute for legal or financial advice and should not be relied upon as such. You should seek legal or financial advice or other professional advice in relation to any particular matters you may have.