Superannuation downsizer: Boost your retirement savings by selling smart
Are you looking to boost your superannuation balance as you near retirement?
Put simply, the downsizer contribution rules intend to allow older Aussies to sell their current home and use the proceeds to contribute to their super account.
Starting 1 January 2023, new rules have lowered the minimum eligibility age to allow people aged 55 and over to access downsizer contributions. Initially, the minimum age was 65, but this has progressively been lowered to age 55.
The lower age limit (55 years) is based on your age when you make the contribution, and there is no upper age limit. Typically, once you reach age 75, the super rules prevent you from making voluntary contributions, so a downsizer contribution presents a rare opportunity to top up your super.
There is no work test requirement to make a downsizer contribution. There is no requirement for you to have ever been in paid employment. However, you can’t claim a tax deduction for a downsizer contribution.
Contribution limits
Under the downsizer rules, you can contribute up to $300,000 ($600,000 for a couple) from the sale proceeds of your eligible family home. The contribution limit is the lesser of $300,000 and the gross actual sale proceeds. This means you cannot contribute if you gift your home to a family member and the sale proceeds are $0.
Any debt or remaining mortgage on the property does not impact the amount you are permitted to contribute to your super account.
Eligible homes
While the downsizer rules are generous, ensuring your home is eligible before you sell is essential.
The key criteria are:
- You must have owned your property for a continuous period of at least 10 years. This is usually measured from the date of your original settlement when you purchased the property to the settlement date when you sell it.
- The property sold must be your family home (primary residence) at the time of the sale, or it must be partially exempt from capital gains tax (CGT) under the principal residence exemption.
- The home you sell must be in Australia.
Some types of property are not eligible under the downsizer rules. These include an investment property you have not lived in, caravans, houseboats and other mobile homes. Vacant blocks of land are also ineligible.
If you sell your home and want to make a downsizer contribution, you are not required to buy a new home with any sale proceeds. That is, there’s no requirement to buy a cheaper or smaller home after making your downsizer contribution, so you can even purchase a more expensive replacement home.
Caution
The costs involved in selling a family home can be substantial. If you purchase another home, sales commissions, moving costs, stamp duty, and land taxes mount up, so think carefully before deciding to downsize. Remember, selling a large home and downsizing to a smaller property does not always release much excess capital (particularly in a capital city), so carefully calculate how much you will have left to contribute to super before selling.
