DOWNSIZING CONTRIBUTIONS INTO SUPERANNUATION
From 1 July 2018, the Australian Government will introduce the Contributing the proceeds of downsizing into superannuation (downsizing) measure. This measure is part of a package of reforms to reduce pressure on housing affordability in Australia.
This measure applies to the sale of your dwelling (your home), which was your main residence, where the exchange of contracts for the sale occurs on or after 1 July 2018.
If you are 65 years old or over and meet the eligibility requirements, you may be able to choose to make a downsizer contribution into your superannuation of up to $300,000 from the proceeds of selling your home.
Your downsizer contribution will not count towards your contributions caps or be affected by the total superannuation balance test in the year you make it.
However, it will count towards your total super balance and transfer balance cap, currently set at $1.6 million. This cap applies when you move your super savings into retirement phase.
You can only make downsizing contributions for the sale of one home. You can't access it again for the sale of a second home.
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 over 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 was 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.
- 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 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 the date of settlement.
- You have not previously made a downsizer contribution to your super from the sale of another home.
Downsizer contribution amounts
If eligible, you can make a downsizer contribution up to a maximum of $300,000. The contribution amount can't be greater than the total proceeds of the sale of your home.
A couple sell their home for $800,000:
- Each spouse can make a contribution of up to $300,000.
End of example
A couple sell their home for $400,000:
- The maximum contribution both can make cannot exceed $400,000 in total.
- This means they can choose to contribute half ($200,000) each, or split it – for example, $300,000 for one and $100,000 for the other.
End of example
Main residence exemption
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
- would be entitled to such an exemption if your home was a CGT rather than a pre-CGT asset (that is, you acquired it before 20 September 1985).
Timing of your contribution
You must make your downsizer contribution within 90 days of receiving the proceeds of sale. This is usually at the date of settlement.
The Commissioner of Taxation has discretion to allow for a longer period if required because of circumstances outside your control. You will need to apply for an extension of time.
Making multiple contributions
You may make multiple downsizer contributions from the proceeds of a single sale.
However, the total of all your contributions must not exceed $300,000 or the total proceeds of the sale less any other downsizer contributions that have been made by your spouse.
You need to make all contributions within 90 days of receiving the proceeds of sale, usually the date of settlement, unless you have been granted an extension.
Contributions found not to be downsizer contributions
If we become aware that your contribution does not meet the downsizer contribution eligibility requirements, the Commissioner will notify your super fund.
Once notified, your fund will assess whether your contribution could have been made as a personal contribution under the contributions acceptance rules.
If your contribution could be accepted, the amount will count towards the relevant contribution cap.
If your contribution can't be accepted, the contribution amount will be returned to you by your super fund.
False and misleading penalties may be applied if we identify that your downsizer contribution was not eligible and you had incorrectly declared that you were eligible to make such a contribution.
How to make a downsizer contribution
Before you decide to make a downsizer contribution, you should:
- check the eligibility requirements for making a downsizer contribution
- contact your super fund/s to check that they accept downsizer contributions.
You may also wish to seek independent financial advice in relation to the age pension asset tests.
Completing the downsizer contribution form
When you choose to make a downsizer contribution you will need to complete the downsizer contribution form. You need to provide this to your super fund when making, or prior to making, the contribution.
If you make multiple downsizer contributions or downsizer contributions to different super funds, you must provide a form for each contribution.
In submitting the form with your downsizer contribution you are confirming that you have met all the eligibility requirements.
The total amount of downsizer contributions you (each individual) can make must not exceed $300,000.
Remember that all downsizer contributions must be made to your super fund within 90 days of receiving the proceeds of sale, usually the date of settlement.
Extension of time
You will be able to request a longer period for making a downsizer contribution in some circumstances. For example, where a delay has been caused by factors outside your control.
The Commissioner of Taxation has discretion to grant an extension of time for you to make your downsizing contributions where your circumstances warrant it.
Example 1: Ben – extension granted
Ben is 77 and decides to sell his family home of 15 years. Settlement occurs on 1 August 2018. He purchases a new home in a retirement village which is due to settle on 1 October 2018.
The retirement village has only just been built and Ben’s settlement is delayed until 1 December 2018 while final council approvals are obtained.
Ben does not want to contribute funds from the sale to his super until after the settlement of his new property to ensure he has enough money to purchase and move into the property.
Upon his request, the Commissioner gives Ben an extension of time to contribute until 1 February 2019. This extension allows Ben enough time to settle on the new property and make a contribution of the remaining money from his sale.
Ben can afford to contribute $200,000 to his super fund after the sale and makes this on 25 January 2019.
End of example
Example 2: Rebecca – extension not granted
Rebecca has just turned 64 and decides to sell her family home which she has lived in for 30 years with her husband James, who is 70. After the sale Rebecca requests an extension of time to make a downsizer contribution, as it is more than 90 days from the date of settlement until she turns 65.
The Commissioner does not extend the timeframe on the basis that the timing of the sale was within Rebecca's control and is far in excess of the 90 days allowed to make the contribution.
Rebecca decides to make a non-concessional contribution to her superannuation from the sale proceeds which counts towards her non-concessional contributions cap.
Her husband James is eligible to make a downsizer contribution and contributes $300,000 to his super fund.