How to Boost Your Super Using the Downsizer Contribution Scheme

What Makes This Scheme Special

The downsizer contribution allows eligible individuals to contribute up to $300,000 from their home sale proceeds into their super fund. For couples, this means a combined potential contribution of $600,000, provided both partners meet the eligibility requirements. What makes this particularly valuable is that downsizer contributions don’t count towards your regular Non Concessional Contribution caps, giving you the flexibility to boost your super balance significantly without the usual restrictions.

Unlike other contributions, downsizer contributions can be made regardless of your Total Super Balance and there’s no maximum age limit. This means even if you already have a substantial super balance or are over 75, you can still take advantage of this opportunity to further strengthen your retirement savings.

Key Changes Over Time

The scheme has become increasingly accessible since its introduction in July 2018. Originally available only to those aged 65 and over, the eligibility age was progressively reduced to 60 in July 2022, and then to 55 from January 2023. This change has opened the door for more Australians to benefit from the scheme during their pre-retirement years.

Meeting the Eligibility Requirements

Understanding the eligibility criteria is crucial before making a downsizer contribution. The requirements ensure that the scheme targets genuine home downsizers while maintaining the integrity of the superannuation system.

Age and Timing Requirements

You must be at least 55 years old when you contribute to your super fund, with no upper age limit. This age requirement applies when you make the contribution, not when you sell your property. The contribution within 90 days must be made from receiving the cash proceeds, typically calculated from the settlement date.

Property Ownership and Location

The property must have been owned by you or your spouse for at least 10 consecutive years before the sale. This ownership period is calculated from the original settlement date of purchase to the settlement date of sale. The home must be located in Australia and cannot be a caravan, houseboat, or other mobile home.

Capital Gains Tax Main Residence Exemption

A critical eligibility requirement is that the sale proceeds must be exempt or partially exempt from Capital Gains Tax under the Main Residence CGT Exemption. This means the property must have been your main residence for at least part of the ownership period. Importantly, you don’t need to be living in the home at the time of sale, as long as it qualified as your main residence at some point during ownership.

One-Time Opportunity

You can only make downsizer contributions once in your lifetime, and they must relate to a single property sale. This makes it important to carefully consider the timing and contribution amount to maximise its benefits. If you previously made a downsizer contribution, you cannot make another one, even if you sell a different property.

Maximising the Benefits of Your Downsizer Contribution

The Downsizer Contribution Scheme offers several compelling advantages that can significantly enhance your retirement planning strategy. Understanding these benefits will help you make informed decisions about how to structure your contribution.

Tax Free Investment Growth

One of the most significant benefits is the tax treatment of your downsizer contribution. Once the money is in your super, investment earnings are taxed at a maximum of 15% while in the accumulation phase. If you’re able to move the funds into a retirement phase pension account after age 60, the investment earnings become completely tax free.

Bypassing Contribution Restrictions

Downsizer contributions offer unique flexibility by bypassing many of the usual superannuation contribution rules. They don’t count towards your concessional or Non Concessional Contributions caps, allowing you to contribute substantial amounts even if you’ve already maximised your regular contributions for the year. Additionally, there’s no work test requirement, making it accessible to retirees who might otherwise be unable to contribute to super.

Preserving Capital for Couples

For couples, the scheme provides excellent opportunities to improve retirement savings across both partners. Each spouse can contribute up to $300,000, even if only one person was listed on the property title. This flexibility allows couples to balance their super accounts and potentially maximise their combined retirement income streams.

Important Considerations and Potential Impacts

While the Downsizer Contribution Scheme offers significant benefits, it’s essential to understand the potential implications for your overall financial position, particularly regarding government benefits and superannuation caps.

Age Pension Implications

One of the most important considerations is how a downsizer contribution might affect your Age Pension eligibility. Your family home is typically excluded from Centrelink’s assets test, but superannuation is counted as an assessable asset. This means that converting home equity into super through a downsizer contribution could potentially reduce your Age Pension entitlements or eliminate them entirely.

The assets test and income test both apply when determining Age Pension eligibility. If you’re currently receiving a full Age Pension and make a significant downsizer contribution, you may find your super balance exceeds the assets test thresholds, resulting in a reduced pension or loss of eligibility.

Future Contribution Considerations

While downsizer contributions don’t immediately affect your Total Super Balance for contribution purposes, they will be included in your balance calculation at the end of the financial year. This could impact your ability to make other types of contributions in future years, particularly if your balance exceeds certain thresholds.

Professional Advice is Essential

Given the complexity of these rules and their potential impact on your retirement income, it’s crucial to seek professional advice from a qualified financial adviser before making any decisions. They can help you model the potential impacts on your overall financial position and ensure you make the most of this valuable opportunity.

Practical Steps to Make Your Downsizer Contribution

Successfully making a downsizer contribution requires careful planning and attention to administrative requirements. Following the correct process ensures your contribution is processed smoothly and receives the intended tax treatment.

Completing the Required Documentation

Before making your contribution, you must complete the Australian Taxation Office form called the ‘Downsizer Contribution into Super Form’. This form must be provided to your super fund before or at the time you make your contribution. You can find this form on the ATO website. Without this form, your contribution will be treated as a regular personal contribution and will count towards your normal contribution cap.

Timing Your Contribution

The 90-day deadline for making your contribution is strict and calculated from when you receive the total proceeds from selling your home, typically the settlement date. It’s important to have your superannuation account details ready and understand your fund’s procedures for accepting large contributions.

Choosing Your Contribution Amount

You can contribute any amount up to $300,000, provided it doesn’t exceed the total sale proceeds. Consider your overall financial situation, including your need for immediate cash flow and whether you plan to purchase a new home or new property. You might choose to contribute less than the maximum to maintain flexibility in your financial planning.

Conclusion

Unlocking equity in your family home through the Downsizer Contribution Scheme can be a powerful way for Australians aged 55 and over to strengthen their super. By allowing up to $300,000 per person to be added to a super fund outside the usual contribution caps, the scheme offers a straightforward path to boost retirement savings and create a more comfortable future.

Careful planning is essential, though. A once-only downsizer contribution can affect Age Pension entitlements because super counts under the assets and income tests, while your home typically does not. Understanding timing, eligibility rules and how the contribution interacts with other caps calls for clear strategy and tailored advice to avoid missteps.

That’s where ACT Tax Group comes in. Our retirement specialists can map out the full impact on your financial position, guide you through ATO paperwork and super-fund requirements, and help you decide how much to contribute within the 90-day window after settlement. Talk to us today to see whether downsizing could be the smartest step toward a secure, tax-effective retirement.