How to upsize your super with a tax-free downsizer contribution

Did you know from age 55, you may be eligible to make a super contribution of up to $300,000 using the proceeds from the sale of your home? 

Downsizing your home in retirement could have several upsides – some money in your pocket, less maintenance, and depending on your new location, greater convenience. 

If it’s something you’ve thought about, particularly if you’d like more savings to fund your retirement, the government’s downsizer contribution scheme may be of interest.

Here’s what’s involved, what the potential benefits may be, and what you should consider. 

What are the benefits of downsizer contributions?

1. Top up your super tax-free

Downsizer contributions may provide a timely opportunity for a tax-free top up of your super savings to provide extra income in your later years. No tax is paid when deposited into your super account, and you can also withdraw it tax-free later on.

2. Standard contribution caps don't apply

Downsizer contributions don't count towards your concessional or non-concessional contribution caps. However, they are limited by what you make on the sale of your home and are subject to a cap of $300,000 per person. Downsizer contributions can be made regardless of how much money you already have inside super.

3. There is no work test or age limits

No work test or upper age limits apply. This is particularly helpful if you’re aged 75 or over, because outside of downsizer contributions, you’re unable to make other voluntary contributions at this age.

4. You don't have to buy a new home

If you sell your home and choose to make a downsizer contribution, there’s no requirement for you to purchase another home with the proceeds from the sale.

5. Both members of a couple can contribute

Both members of a couple can take advantage, which means up to $600,000 of the sale proceeds (maximum $300,000 per person) can be contributed into super.

What eligibility criteria applies to downsizer contributions?

• You must be aged 55 or over at the time you make the contribution.
• The home must have been owned by you or your spouse for at least 10 years immediately prior to the sale, and must’ve been your primary residence at some point.
• Your home must be in Australia and cannot be a caravan, houseboat or mobile home.
• You can only make a downsizer contribution from the sale proceeds of one home, so you can't access the scheme again for the sale of a second home.
• Your downsizer contribution must be made within 90 days of the time the change of ownership occurs, which is usually the date of settlement. 

To view the complete list of eligibility requirements, visit the ATO website.

What other things should be considered?

Moving from your current location 

1. What costs are involved, such as real estate charges and legal fees when you sell your home. Buying a new home can also mean further legal costs and things like stamp duty. You may also be up for strata fees if you plan to move into an apartment or townhouse.
2. How much your current home is likely to sell for. You may want to get a professional valuation from a property valuer.
3. Where you want to move to, considering what type of lifestyle you want to live, how far you are from family and friends, and how close you are to shops, transport and healthcare.

Potential impacts on Age Pension entitlements

The value of your main residence is excluded from the Age Pension assets test while you live in it. However, if it’s sold and the proceeds are added to your super, the value of your downsizer contribution (and any other super you have) will be included in the assets test once you reach Age Pension age and may reduce your pension benefits.

The transfer balance cap

The transfer balance cap limits the amount of super savings you can transfer into a retirement pension, and downsizer contributions aren’t exempt from this cap.

Your personal transfer balance cap can be up to $1.9 million, depending on how much of your cap you’ve already used, if any. You can check out your transfer balance cap info via the ATO section of your myGov account.

Downsizer contributions aren’t tax deductible

Downsizer contributions are tax free, but they aren’t tax deductible like some other types of super contributions. Find out what super contributions are tax deductible.

How can you make a downsizer contribution?

If you’re eligible, you’ll need to complete the Downsizer contribution into super form and submit this to your super fund before or with your contribution. 

Where can you find more info on downsizer contributions?

There are a lot of rules around downsizer contributions and the government’s Age Pension if you’re eligible for it, so if you’re thinking about downsizing, it’s a good idea to talk to your financial adviser. If you don’t have one and would like some advice, you can use our find an adviser service.