What is a downsizer contribution?
A downsizer contribution is a special kind of super boost which uses the proceeds from the sale of your family home. It's classified as a non-concessional (after-tax) contribution, but here's the twist: it doesn't count towards your annual non-concessional contributions cap. You can add a significant sum to your super without it affecting your contribution limits.
- Impact on your super balance: While the contribution won't immediately alter your total superannuation balance, it will be included in the end-of-financial-year calculations. This strategy allows you to quickly boost your retirement savings without immediate consequences to your contribution strategy.
- Considerations for the retirement phase: One important aspect is that downsizer contributions do count towards your transfer balance cap. This cap is crucial when transitioning your super savings into the retirement phase, where there is no tax on investment earnings. It also plays a role in determining your eligibility for the Age Pension.
Pros
Downsizer contributions are after tax and increase your tax-free balance. You can make withdrawals tax-free and avoid the 15% death tax when passed to non-dependent beneficiaries.
You can make downsizer contributions if you are 55 years of age or older (if you’re making a couple’s contribution, you must both be 55 or over).
Cons
These contributions don't offer personal tax deductions, which might be a drawback for individuals with high taxable incomes.
Selling your home and moving the proceeds into super could affect your eligibility for Centrelink benefits, including the Age Pension. It is recommended to seek financial advice for your personal circumstances.
Selling your home raises questions about how you will live after downsizing and if this scheme will leave sufficient funds for your needs.
Check your eligibility
- Age criterion: Eligibility begins at age 55. There is no upper age limit for making a downsizer contribution.
- Home ownership: You or your spouse can own the home, but it must have been in your possession for at least 10 years prior to the sale.
- Location and type of home: The property must be in Australia and cannot be mobile, such as a caravan or houseboat.
- Timing of contribution: You must make your downsizer contribution within 90 days of receiving the sale proceeds, typically aligned with the settlement date.
- Contribution history: This must be your first (and only) downsizer contribution from selling any home.
- Documentation: The Downsizer Contribution into Super form must be submitted to your super fund before or when making your contribution.
- Special note: Even if only one spouse owned the home, both may qualify to make a downsizer contribution, assuming all other criteria are met.
