Downsizer Contribution Extended

Downsizer contribution measure eligibility has been extended

The downsizer contribution concession was introduced from 1 July 2018 to allow older Australians selling an eligible dwelling to make additional contributions (over and above their standard contribution caps) into their superannuation fund.

Broadly, the downsizer contribution concession has traditionally allowed eligible individuals aged 65 or more before 1 July 2022, or aged 60 or more from 1 July 2022, to make non-deductible contributions of up to $300,000 (or up to $600,000 per couple) from the sale of an eligible dwelling that was used as their main residence.

The downsizer contribution concession is an attractive option for eligible individuals to boost their superannuation entitlements, particularly for the following reasons:

1. A downsizer contribution is not counted towards an individual’s standard contribution caps (i.e., their concessional or non-concessional contributions caps).
2. The total superannuation balance restriction (which determines an individual’s eligibility for a non-concessional contributions cap) does not apply in respect of a downsizer contribution. This means that an eligible individual can make a downsizer contribution into their super fund, regardless of their total superannuation balance (e.g., even where it exceeds $1.9 million).
3. A downsizer contribution is not included in the assessable income of the receiving fund. Therefore, it will form part of the tax-free component of a member’s accumulation interest.

There are various eligibility requirements that need to be satisfied in order for a downsizer contribution to be made, including (among others) the ’10-year ownership test’, and the requirement that the disposal of the dwelling must qualify for a partial or full CGT main residence exemption.

As from 1 January 2023, the Government has broadened access to the downsizer contribution concession by reducing the minimum age requirement for accessing this concession from age 60 to age 55. This means that individuals aged 55 to 59 years who were not previously eligible to make downsizer contributions due to their age are now eligible to make downsizer contributions if they satisfy all the eligibility requirements.

It is also important to note the following:

• A downsizer contribution can be made in respect of an individual following the disposal of an eligible dwelling, if the individual and/or their spouse held an ownership interest in the relevant dwelling. This means that a downsizer contribution could be made in respect of an individual where their spouse had a 100% ownership interest in the relevant dwelling being sold, provided that all of the other requirements for making a downsizer contribution are satisfied.
• A downsizer contribution can be made on the disposal of a dwelling that was not being used as a main residence at the time of sale, provided that the disposal of the dwelling qualifies for a partial or full CGT main residence exemption.

Ref: National Tax & Accountants' Association Ltd 'The Tax Advisors' Voice' monthly newsletter August 2023.