Downsizer Contribution Scheme – Your Questions Answered

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Nearing the age of 60 and wondering how you can boost your savings to fund your retirement?

As of 1 July 2022, eligible Australians will be able to start taking advantage of the recently revised Downsizer Contribution Scheme. This scheme has been devised to compliment longer term financial planning by using significant proceeds of the sale of your family home to your super as a tax-free downsizer contribution.

In this article we will outline the scheme, its eligibility requirements, and some examples of how you might be able to leverage the sale of your primary residence.

What is the Downsizer Contribution Scheme?

Whilst the scheme is not a new one, what’s different is the age eligibility has dropped from 65 years to 60 years. Thus, commencing July, the scheme will allow eligible Australians over 60 years of age to make what is called a ‘downsizer contribution’ of up $300,000 into a compliant superannuation fund. This contribution must be based on the sale of your primary residence, that you have owned for 10 years or more. These contributions can be made regardless of caps and restrictions that otherwise apply.

 

Benefits of the Downsizer Contribution Scheme

No work test requirements

You’re not required to undertake a work test or apply for an exemption contribution.  This is particularly attractive for people over 75 and over, because this is the only scheme you can make a voluntary contribution to at this age or above.

Your spouse can also contribute from the same sale

If your spouse or significant other is 60 years or over, they can also contribute $300,000 to their super, even if they are not the owner of the property. One thing to keep in mind though is that the total of couple contributions cannot be greater than the price of the house when sold.

No contribution caps

What you have in your super at the time of the application is not capped. Typically,

It doesn’t matter how much you already have in your super – the total super savings test (must be $1.7 million or less to make after-tax contributions) doesn’t apply for downsizer contributions.  It is important that the downsizer contribution form is received by the fund within 90 days of the settlement date.

Tax benefits

The downsizer contribution is what is known as an after-tax contribution, so you won’t be paying tax when you add it to your super. The other bonus is being over 60 years, it’s tax free should you withdraw it in the future.

Aged Pension impact

If you currently claim and aged pension, the impact of selling your primary residence needs to be considered. Whilst the value of your main residence is excluded from the assets test, if you choose to sell and make a downsizer contribution, this will be subject to assessment and may reduce your age pension benefits.

Eligibility requirements

From 1 July 2022, the following requirements apply:

  • You must be aged 60 and over
  • You must sell the principal property you live in, that have owned for at least 10 years in Australia
  • The sale of the primary residence must qualify for a capital gains tax exemption
  • If you bought the property before 20 Sept 1985 (before capital gains tax was implemented), it still needs to be your principal place of residence at some stage during the time you’ve owned it
  • The contribution must be made within 90 days of receiving the proceeds of sale (or longer permitted period), which is usually the settlement date


Useful examples

Here’s some examples of how the Downsizer Contribution Scheme could work for you.

Example 1:

Mike and Joan have recently retired and are both over the age of 60. They’ve sold their family home that they have lived in for 15 years. Selling their home on 10 November 2022, $750,000 and with settlement a month later. As the house is their primary residence, they are exempt from paying capital gains tax.

They both contributed $300,000 each to their super as the price the home sold as, was more than their downsizer contribution. They are exempt from capital gains tax due to the home having been their primary residence and made their contribution within the required 90 day transfer period.

Example 2:

Jenny and Frank have lived in Jane’s house for 11 years. Jenny is 61 and Frank is 59. Selling their home for $550,000 in September 2022, Jenny contributed $300,000 to her super using the downsizer scheme, Frank wasn’t eligible as he’s under 60 years of age.

Jenny is exempt from paying any capital gains on the sale of her property as it is her primary residence.

For more information on the downsizer scheme, visit the ATO website.

Thinking about downsizing into a lifestyle community? Learn more about the Hampshire Village difference.

Browse our range of homes for sale or get in touch today and speak with our friendly team about how we can help you make the most of your retirement. Opportunity awaits!

Telephone: 1300 730 869 

* Please note, any information in this blog is general only and has been prepared without taking into account your particular circumstances and needs. Before acting on any information above you should assess or seek advice on whether it is appropriate for your needs, financial situation, and objectives. 

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