For many Australians approaching retirement, selling the family home can be about more than finding a smaller or more manageable property. It can also create an opportunity to strengthen retirement savings through a downsizer contribution to superannuation.
The Australian Government’s downsizer rules allow eligible homeowners to contribute some of the proceeds from selling their home directly into superannuation. For eligible individuals, the contribution can be up to $300,000, while an eligible couple may potentially contribute up to $600,000 between them, subject to each person’s eligibility and the applicable rules.
- The eligible age for a downsizer contribution is currently 55 years or older.
- Since 1 January 2023, you must be at least 55 years old when making the contribution.
- There is no maximum age limit for a downsizer contribution, provided you meet the other eligibility requirements.
However, downsizing does not automatically mean there will be hundreds of thousands of dollars available to put into super. Property prices, selling costs and the cost of the replacement home all need to be considered.Understanding the rules before selling is important because there are specific eligibility requirements, contribution deadlines and conditions that need to be satisfied.
Why Downsizing Doesn’t Always Mean Having More Cash
The term “downsizing” can sometimes create the impression that selling a large family home will automatically release a substantial amount of money.
That is not necessarily the case.
Many Australians sell their existing home and purchase another property in a desirable location. They may choose a newer apartment, a low-maintenance townhouse or a property closer to family, the coast, healthcare services or a major city.
In some areas, the replacement property can cost almost as much as the home being sold. There are also selling costs, legal fees, moving expenses, stamp duty where applicable and other transaction costs to consider. This means the amount available for a downsizer contribution will depend on the individual’s circumstances and the actual proceeds available from the sale. For those who do have surplus funds, however, the downsizer rules can provide an opportunity to move a significant amount into the superannuation system.
Downsizer Contribution Eligibility: What Are the Rules?
The ATO sets out a few conditions that must be met before a contribution can qualify as a downsizer contribution.
Generally, you must:
- Be 55 years of age or older when making the contribution.
- Have owned the property for at least 10 years before the sale, generally measured from the date of acquisition to the date of disposal.
- Have owned the property as an individual or jointly with your spouse.
- You or your spouse must have held an ownership interest in the property, and the relevant 10-year ownership requirement must be satisfied.
- Make the contribution from the proceeds of selling an eligible Australian residential property.
- Satisfy the relevant main residence requirements.
- Make the contribution within the required timeframe.
- Have not previously made a downsizer contribution from the sale of another dwelling.
The ATO states that the contract for sale must generally have been entered into on or after 1 July 2018. The contribution must generally be made within 90 days of the change of ownership, unless the Commissioner grants an extension. It is therefore important not to treat the downsizer contribution as an informal arrangement that can be organised whenever convenient after settlement.
The 90-Day Downsizer Contribution Deadline
One of the most important practical considerations is timing. Eligible downsizer contributions generally need to be made within 90 days from the change of ownership of the property. The ATO can grant an extension in certain circumstances.
This means homeowners planning to use the downsizer rules should consider their superannuation arrangements before the property settles. Waiting until after settlement to investigate the rules could create unnecessary pressure, particularly if there are questions about eligibility or the amount that can be contributed. The timing should also be considered alongside the settlement of the replacement property, because selling the existing home and buying another property can involve significant cash-flow requirements.
How Much Can You Contribute?
An eligible individual can generally make a downsizer contribution of up to $300,000 from the proceeds of selling an eligible home. The ATO states that the maximum amount an individual can contribute from the sale of one home is the lesser of:
- $300,000, or
- the sale proceeds remaining after taking into account other downsizer contributions made by the individual or their spouse.
Importantly, multiple downsizer contributions can potentially be made from the sale of the same home, provided the total does not exceed the applicable maximum. For example, an eligible homeowner might contribute $150,000 shortly after settlement and another $150,000 later, provided the relevant conditions are met. A couple may also be able to contribute up to $300,000 each if both individuals meet the requirements.
Does a Downsizer Contribution Count Towards Your Normal Super Contribution Caps?
A qualifying downsizer contribution does not count towards your concessional or non-concessional contribution caps. This can make the downsizer rules particularly useful for people who may otherwise have limited opportunities to contribute a significant amount into super. However, once contributed, the money becomes part of your superannuation balance and the normal superannuation rules will apply. The contribution should therefore be considered as part of your broader retirement and superannuation strategy rather than in isolation.
Can Downsizer Contributions Help Build Retirement Wealth?
For homeowners who have substantial equity in their property, downsizer contributions can provide another way to structure retirement savings. Money held in the family home can provide security and reduce housing costs, but it does not generally produce investment income in the same way as assets held within superannuation.
Moving some surplus capital into super may allow the money to form part of a broader retirement investment strategy. However, contributing money to super also means the funds become subject to the superannuation rules.
The decision should therefore be considered as part of an overall retirement plan rather than simply as a tax strategy. The appropriate approach will depend on factors such as:
- Age
- Existing superannuation balances
- Pension arrangements
- Investment objectives
- Cash-flow requirements
- Estate planning
What Does This Have to Do with SMSFs?
Downsizer contributions can also be relevant to people who have a Self-Managed Super Fund (SMSF). An SMSF is a superannuation fund that members manage themselves. SMSFs are regulated by the Australian Taxation Office, rather than APRA. APRA’s own licensing guidance confirms that SMSFs are not RSEs and are instead regulated by the ATO.
This distinction is important. An SMSF trustee remains responsible for ensuring that contributions are correctly accepted and recorded and that the fund complies with superannuation legislation. The supplied material also highlights that SMSF trustees remain responsible for the fund’s investment strategy and compliance even where professional investment managers or other advisers are engaged.
SMSFs vs APRA-Regulated Super Funds
Most Australians have their superannuation with an APRA-regulated fund, such as an industry or retail super fund. APRA oversees registrable superannuation entities and their licensed trustees. APRA’s prudential framework includes requirements covering areas such as:
- Governance
- Investment governance
- Risk management
- Insurance
- Member outcomes
For example, APRA’s SPS 530 Investment Governance requires RSE licensees to maintain an investment governance framework, establish investment objectives and strategies, conduct due diligence and undertake stress testing. APRA’s SPS 510 Governance also establishes minimum governance requirements for RSE licensees and places ultimate responsibility for sound and prudent management with the board. These APRA requirements apply to APRA-regulated superannuation entities and should not be confused with the regulatory framework governing SMSFs.
Most industry and retail super funds are regulated by APRA, while SMSFs are regulated by the ATO. The key practical difference is that SMSF trustees take direct responsibility for the fund’s compliance, investment strategy and administration. For SMSF members, the ATO is the key regulator.
What Are the Risks of an SMSF?
Having greater control over superannuation can also mean greater responsibility. SMSF trustees are responsible for making sure the fund’s investment strategy is appropriate, keeping records, meeting reporting obligations and complying with the superannuation laws. SMSFs do not have the same protections available to members of APRA-regulated funds.
There are also ongoing costs, including:
- Accounting
- Administration
- Auditing
- Regulatory levies
- Investment advice
- Potentially legal and insurance expenses
This means an SMSF should not be established simply because a downsizer contribution is available. The decision to use an SMSF should be considered separately from the decision about whether a downsizer contribution is appropriate.
Can You Use a Downsizer Contribution More Than Once?
Generally, no. The downsizer rules contain a once-only requirement. The ATO states that an individual must not have previously made a downsizer contribution from the sale of any dwelling. This can include multiple partial disposals of an ownership interest in the same dwelling.
This makes it particularly important to understand the rules before making the contribution. A decision to make a downsizer contribution can have long-term consequences because the opportunity generally cannot simply be repeated when another property is sold in the future.
What About the Capital Gains Tax Rules?
The property must generally satisfy the relevant main residence requirements for the downsizer rules. The ATO’s eligibility guidance refers to both an ownership test and a main residence test. This is an important area where professional advice can be useful, particularly where a property has been:
- Used partly as an investment property
- Rented out for periods
- Inherited
- Jointly owned
- Subject to other ownership arrangements
Not every residential property transaction will automatically qualify.
Downsizer Contributions and Capital Gains Tax (CGT)
Selling a property may also create Capital Gains Tax considerations.The tax outcome will depend on the individual’s circumstances, including:
- How the property was used
- Whether it was used to produce income
- Ownership history
- The period the property was held
- Whether any exemptions or concessions apply
The downsizer contribution rules and Capital Gains Tax rules are separate considerations.Meeting the downsizer contribution requirements does not automatically mean there are no CGT implications. Understanding both areas before selling can help avoid unexpected tax outcomes.
Is Downsizing the Right Strategy for You?
Downsizing can be an effective retirement planning strategy for some Australians, but it is not suitable for everyone.The decision involves more than just the opportunity to contribute money into superannuation.Factors to consider may include:
- Future housing needs
- Lifestyle preferences
- Access to funds
- Retirement income requirements
- Superannuation position
- Tax implications
- Estate planning objectives
For some people, remaining in their current home may continue to be the preferred option. For others, selling the family home and contributing surplus funds into superannuation may better align with their retirement goals.
What Should You Consider Before Making a Downsizer Contribution?
Before selling your home, consider:
Your Eligibility
Make sure all downsizer contribution requirements are satisfied before proceeding.
Your Financial Position
Review:
- The expected sale proceeds
- Replacement property costs
- Selling expenses
- Available cash reserves
Your Superannuation Strategy
Consider how the contribution fits with:
- Your existing super balance
- Retirement income plans
- Investment strategy
Your Estate Planning
A significant contribution into superannuation may affect how your assets are structured and passed on in the future.
How Professional Advice Can Help
Downsizer contributions involve several rules and requirements that need careful consideration. Professional advice can help you understand:
- Whether you qualify
- How much you may be able to contribute
- How the contribution fits into your retirement strategy
- Potential tax considerations
- The impact on your broader financial position
Planning before selling your home can help ensure the decision supports your long-term retirement objectives.
Final Thoughts
Downsizer contributions provide eligible Australians with an opportunity to move some proceeds from the sale of their home into superannuation. For some homeowners, this can help strengthen retirement savings and provide greater flexibility. However, selling a home is a significant financial decision and should be considered carefully. The downsizer rules should be reviewed alongside:
- Retirement plans
- Superannuation strategy
- Tax considerations
- Investment objectives
- Estate planning arrangements
Understanding the requirements before selling can help ensure decisions are made with a clear understanding of the potential outcomes.
Frequently Asked Questions
What is a downsizer contribution?
A downsizer contribution allows eligible Australians to contribute some proceeds from selling their home into their superannuation fund.
How much can I contribute through downsizer rules?
Eligible individuals may be able to contribute up to $300,000 from the sale of an eligible home.
Can couples both make downsizer contributions?
Yes. If both individuals meet the eligibility requirements, each person may be able to contribute up to $300,000.
What age do I need to be to make a downsizer contribution?
You must generally be at least 55 years old when making the contribution and meet the other eligibility requirements.
Does a downsizer contribution count towards normal contribution caps?
No. A qualifying downsizer contribution does not count towards concessional or non-concessional contribution caps.
Can I make a downsizer contribution more than once?
Generally, no. The downsizer rules include a once-only requirement.
Can I make a downsizer contribution into an SMSF?
Yes, provided the SMSF accepts the contribution and all eligibility requirements are satisfied.
How Can We Help?
If you are considering selling your home and want to understand how downsizer contributions may apply to your retirement strategy, Camden Professionals can help review your options.
Our team can assist with:
- Retirement planning considerations
- Superannuation strategies
- Tax implications
- Wealth planning
- Financial structuring considerations
Contact Camden Professionals to discuss your circumstances.
General Advice Warning
The material on this page and on this website has been prepared for general information purposes only and not as specific advice to any person.
Any advice contained on this page and on this website is General Advice and does not consider any person’s particular investment objectives, financial situation and particular needs.
Before making an investment decision based on this advice you should consider, with or without the assistance of a securities adviser, whether it is appropriate to your particular investment needs, objectives and financial circumstances.
The examples provided on this page and on this website are for illustrative purposes only.
Although every effort has been made to verify the accuracy of the information contained on this page and on this website, Camden Professionals, its officers, representatives, employees, and agents disclaim all liability except for any liability which by law cannot be excluded, for any error, inaccuracy or omission from the information contained in this website or any loss or damage suffered by any person directly or indirectly through relying on this information.
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