Downsizer Contributions | What your clients need to know

Are any of your clients considering, or currently in the process of, selling their home? If so, we would strongly encourage they withhold on making any final decisions as they could be eligible to contribute up to $300,000 of the sale proceeds per member to their superannuation fund.

The ‘downsizer’ contribution comes into effect from 1 July 2018 and allows those eligible to boost their superannuation savings, without the need to satisfy normal superannuation contribution eligibility criteria (including the work and total super balance tests).

These contributions will not count towards the concessional or non-concessional contribution caps and the individual making the contribution will not need to meet the existing maximum age, work or $1.6m balance tests for contributing to super.

Eligibility criteria

  • Member/s must be aged 65 or over from 1 July 2018
  • Must have owned home for at least 10 years and it meets the test for a ‘main residence’ exemption (or partial exemption) under CGT rules (although members do not have to be currently living in it)
  • The contract for sale must be entered into on or after 1 July 2018 and the contribution must be made within 90 days of the sale date

The downsizer contribution can only be made once.

Benefits

  • Boost savings in superannuation
  • It is important to note that members are not required to make a subsequent home purchase or purchase a new residence of a smaller value. Members can move into any living situation suitable for them after the sale
  • If funds are required after the downsizer contribution is made, lump-sum withdrawals can be made which are received tax-free
  • If applicable, the members' spouse can also make a downsizer contribution, increasing the potential contribution to a maximum of $600,000 combined (as long as this doesn’t exceed the home’s sale price)

Multiple downsizer contributions from the proceeds of a single sale can be made, but the total of all contributions must not exceed $300,000 or the total proceeds of the sale less any other downsizer contributions that have been made by the members' spouse. All contributions still are required to be made within 90 days of receiving the funds which is usually from the date of settlement, unless they have been granted an extension.

Please make your clients aware of this opportunity and to ensure they have a discussion with an authorised advisor. Keep in mind that downsizer contributions can still be open up opportunities even if the clients require most of the proceeds from the sale of the residence.

If you have any queries on how the tax cuts will impact your clients, please contact your Partners Wealth Group advisor.

This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.