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What is a ‘Downsizer’ Superannuation Contribution?

Written by Mark Williams

3 Minutes –

What is a ‘Downsizer’ Superannuation Contribution?

Being asset rich and income poor is not an unusual predicament among Australia’s retired population. A single person, or couple, living on the age pension alone, are unlikely to be able to meet even a moderate lifestyle in retirement.

Taking advantage of the Government’s downsizer legislation may be a good option if you wish to sell or downsize your home and use some of the money to boost your retirement savings and potentially commence an income stream for retirement. It may also be useful if you simply wish to downsize your home and tax effectively managed the surplus equity released.

How does it work?

If you are 55 years or older, you may be able to contribute up to $300,000 ($600,000 for couples), into superannuation from the proceeds of a sale (or part sale), of your home. This strategy may help you reduce tax and provide you with an income stream within retirement. 

The detail

The rules around the contribution are reasonably simple. A summary of the key points is provided below:

  • You must be over the age of 55 to make the contribution.
  • The proceeds are from the sale of an eligible Australian property which you have owned for at least 10 years before the sale.
  • You claim the capital gains tax (CGT), main residence exemption on this property (partly or wholly).
  • You are not able to claim a tax deduction for the contribution.
  • The contribution is made within 90 days of settlement.
  • You elect with your superannuation fund to treat the contribution as a downsizer contribution.
  • You have not previously made a downsizer contribution.

The above list is a simple summary of the rules. There is more detail that will need to be addressed prior to making the contribution. It will be necessary for you to receive documented advice prior to adopting this strategy.

Summary 

Making the downsizer contribution is an excellent way to use some of the equity in your home to help fund your retirement. However, it is not an isolated strategy. It is normally implemented in conjunction with other strategies linked to tax minimisation, retirement income streams and Centrelink. There are wider rules and considerations that you will need to weigh up. W2 Wealth can help you demystify these strategies and provide you with personalised documented advice. Contact us now to find out more.