The eligibility age for the Downsizer contribution is changing from 65 to 60 on 1 July this year and this could  boost your savings for retirement

The eligibility age for the Downsizer contribution is changing from 65 to 60 on 1 July this year. If you’re thinking about a sea or tree change, or planning to move into a smaller home, it could be an opportunity to make a Downsizer contribution into super and boost your savings for retirement. But how does it all work? We cover what you need to know about this tax-effective way to save.

How the Downsizer contribution scheme works

If you sell your family home, you can contribute the proceeds from the sale (or part sale) into super. Singles can contribute up to $300,000 and couples can contribute up to $600,000 combined. The contribution cannot exceed the total proceeds from the sale of your home.
Here are a few scenarios:

Scenario 1

Couple A sell their home for $900,000. Each spouse can contribute up to $300,000 into super.

Scenario 2

Couple B sell their home for $500,000. Their combined contribution cannot exceed $500,000. Each spouse can therefore choose to contribute half ($250,000) each or split the contribution another way; $300,000 and $200,000 for example.

Scenario 3

Couple C decide to sell 30% of the equity in their $900,000 home, a total of $300,000. Either spouse can make a Downsizer contribution of $300,000 into super, or they can split the contribution between them however they choose. Once they have made their Downsizer contribution, they won’t be able to make another contribution in the future if they decide to sell more equity in their home.

Because the Downsizer contribution is an after-tax contribution, no tax is paid on the way into your super account. Over age 60, you won’t be taxed on any withdrawals you make from super either.

It’s also useful to know that any contribution you make won’t count towards your contribution limits and it won’t affect your total superannuation balance. But it will affect your transfer balance cap, which applies when you move your super savings into the retirement phase of super.

Important implications for the Age pension 

If you qualify for the Age Pension, it’s important to bear in mind that Downsizer contributions are added to your super balance and will therefore be included in the assets and income test. Making a contribution could therefore affect your eligibility or reduce your pension payments, so it’s best to seek financial advice before you go ahead.

Eligibility criteria for the Downsizer contribution
Once you satisfy the over 60 age criteria, there are a few other eligibility criteria to be aware of:  

• Your home must have been owned by you or your spouse for 10 years or more
• You must make the Downsizer contribution within 90 days of sale
• You have not previously made a Downsizer contribution to your super from the sale of another home or from the part sale of your home
• The home must be located in Australia and cannot be a caravan, houseboat or other mobile home
• Capital gains or losses from the sale must be either exempt or partially exempt from capital gains tax (CGT)

You can find more information about the Downsizer contribution on the ATO website.

Next Steps

Making a Downsizer contribution could be a great way to boost your savings and income in retirement. But it all depends on your own personal circumstances and plans for retirement.  As always, make sure you seek advice from a qualified professional before you make any big financial decisions.