Is ‘downsizing’ worth it?

Downsizing and Superannuation: How the Downsizer Contribution Works

From 1 January 2023, Australians aged 55 and over can take advantage of the downsizer contribution to superannuation. This change lowers the eligibility age from 60 to 55, creating a valuable opportunity for more people to boost their retirement savings significantly.

Downsizing doesn’t necessarily mean moving to a smaller home—it’s about leveraging the sale of your current property to increase your superannuation balance. Here’s everything you need to know about this strategy and how it could benefit you.

What Is a Downsizer Contribution?

A downsizer contribution allows eligible individuals to contribute up to $300,000 from the proceeds of selling their home directly into their superannuation fund.

This contribution is excluded from the usual restrictions such as:

• The age test
• The work test
• The transfer balance threshold (although it is subject to your transfer balance cap).

For couples, both members can take advantage of this measure—even if one spouse doesn’t have an ownership interest in the property—allowing a combined contribution of up to $600,000 per couple, provided all eligibility criteria are met.

Eligibility Criteria for Downsizer Contributions

To qualify for this scheme, you must meet the following conditions:

1. Age Requirement
   You must be 55 years or older (from 1 January 2023) at the time of making the contribution.
2. Property Ownership
   The home must have been owned by you or your spouse for at least 10 years prior to the sale. The ownership period is calculated from the settlement date of purchase to the settlement date of sale.
3. Type of Property
   The property must be located in Australia and cannot be a caravan, houseboat, or other mobile home.
4. Capital Gains Tax (CGT) Exemption
   The property must qualify for either a full or partial CGT exemption under the main residence exemption, or it would have qualified if it were a post-CGT asset (acquired after 20 September 1985).
5. Timely Contribution
   The downsizer contribution must be made within 90 days of receiving the sale proceeds, which is typically the settlement date.
6. Superannuation Fund Notification
   You must provide your super fund with the Downsizer contribution into super form (NAT 75073) before or at the time of making the contribution.
7. One-Time Use
   Downsizer contributions can only be made once in your lifetime, so it’s essential to ensure this strategy aligns with your financial goals.

Key Benefits of Downsizer Contributions

• Boost Superannuation Balances Quickly
  Downsizer contributions offer a straightforward way to inject a significant amount of money into your superannuation fund, which can grow tax-efficiently to support your retirement.
• Flexibility in Property Choices
  Despite the name, you are not required to purchase a smaller or cheaper home after selling your property. You could downsize, upsize, or even choose not to buy another home at all.
• Spousal Contributions
  Couples can double their contributions, potentially adding up to $600,000 to their combined superannuation balances.

Considerations and Implications

While downsizer contributions can be highly beneficial, there are some factors to consider:

1. Impact on Age Pension Eligibility
   Sale proceeds and downsizer contributions count towards the Age Pension assets test. This could affect your eligibility for government support, particularly if the funds significantly increase your assessable assets.
2. Irrevocability
   Since you can only make a downsizer contribution once, careful planning is essential. Ensure this aligns with your overall retirement strategy and future plans.
3. Financial Advice
   Consulting with a financial advisor is highly recommended to assess the tax implications, potential impacts on social security benefits, and whether downsizing is the right move for your circumstances.

How to Get Started

If downsizing sounds like a viable strategy for you, follow these steps:

1. Assess Your Eligibility
   Review the criteria above to ensure you qualify for the downsizer contribution.
2. Sell Your Home
   Ensure the property meets the eligibility requirements and finalize the sale.
3. Plan Your Contribution
   Work with your financial advisor to determine the amount you’ll contribute and its implications for your retirement and Age Pension eligibility.
4. Submit the Required Forms
   Provide your super fund with the appropriate downsizer contribution form (NAT 75073) before or when making the contribution.

Downsizing for a Better Retirement

Downsizing can be a powerful way to free up funds and secure a more comfortable retirement. By understanding the benefits, eligibility criteria, and potential impacts, you can make an informed decision about whether this strategy suits your needs.

Whether you’re considering a move to a smaller home, relocating to a different area, or simply looking to enhance your retirement savings, the downsizer contribution provides a flexible and tax-effective pathway to achieve your financial goals.