Downsizer Contributions Cap

From 1 July 2018 a new Contributions Cap will apply, designed for people downsizing from their main residence.

Called the Downsizer Contributions Cap, it allows a once-off contribution to Superannuation of up to $300,000 per individual, from the sale of a residence.

There are some conditions:

  • The recipient must be 65 years of age or older, but there is no age restriction on the contributor.
  • The contribution must be from all or part of the capital received from the sale of the individual’s property in Australia
  • The contract for sale must be dated after 1 July 2018
  • The property need not be the primary dwelling at the time of sale, but should have been a primary dwelling at some point during ownership
  • The dwelling must not be a caravan, houseboat or other mobile home
  • The contribution must be made within 90 days from the change of ownership / settlement.
  • The contributor / spouse or former spouse must have owned an interest in the property for the 10 continuous years prior to its sale
  • At least part of the capital must have been disregarded under the main residence CGT rules
  • The contributor does not need to be the property owner. It could be owned by the spouse or member for whom the contribution is made.
  • No new property needs to be purchased following the sale
  • The contribution can be made irrespective of the balance in your superannuation fund, it is not included towards any other contributions cap or balance test, however it will count towards any total super balance and transfer balance cap which is currently set at $1.6 million. This is only relevant when you move your super savings into retirement phase.
  • The contribution is per person, so $300,000 can be contributed for an individual and a further $300,000 for their spouse or partner, whether the spouse or partner owned or lived in the property or not.
  • Downsizer contributions are not tax deductible and they will be taken into account for determining eligibility of the age pension.

Example:  Joe and Josephine lived in their family home for 15 years. They are 68 and 65 years old respectively and are looking to travel around in their caravan for 12 months.   They sold the home for $1 million and because this was their primary residence, the sale did not attract capital gains tax.  They have a self managed superfund and they are both trustees and members of the fund.  They are each able to contribute $300,000 into the fund within 90 days of their property settlement as a once-off downsizer contribution.

One principal negative feature of downsizer contributions is that $300,000 (or $600,000 if a couple) will be transferred from what is essentially a tax exempt and Centrelink test exempt environment to a possibly taxed and Centrelink tested environment.  As such, making downsizer contributions may have an adverse impact on the entitlement to the age or veterans pension.  Careful consideration will have to be given to the age /veterans pension implications of making such contributions.

If you are looking to make a change in your property ownership and are 65 years or over, please talk with our superannuation experts at PJT to ensure they can maximise any contributions you are able to make and minimise any tax or pension penalties.