In this guide
Owning your own home is part of the Aussie dream, but it’s also a key part of any good retirement plan. With Australia facing a housing shortage and rising rents, having a place to call your own can make the difference between a happy retirement and one that’s much tougher and more insecure.
Your current home or a property you’ve previously used as your primary residence can also play an important role in helping to boost your income in retirement.
Selling an eligible property could be a great way to release some of the equity you have built over the years to give your super a big last-minute boost.
The government’s willing to give you a hand as well, by offering some attractive incentives. It sees helping older people to ‘right size’ their home for retirement as one way to free up larger homes for young families looking to enter the housing market.
What are downsizer contributions?
When you sell an eligible property and meet the age requirements, you have the opportunity to make a downsizer contribution.
Despite the name, you don’t need to be moving to a smaller place. You could be purchasing a larger property or choose not to buy at all. The property you’re selling may not even be your current home, but somewhere you lived in the past.
To make a downsizer contribution you must be aged 55 or more on the day of the contribution. There is no upper age limit. Normally, once you reach age 75 the super rules prevent you from making voluntary contributions, so a downsizer contribution presents a rare opportunity to top up your super.
There is no requirement for you to be working (or to have ever participated in paid employment) to make a downsizer contribution. However, you can’t claim a tax deduction for a downsizer contribution.
Downsizer webinar
Learn about downsizer super contributions in detail in our webinar, including how the eligibility rules work, plus timing, Centrelink and strategy considerations.
Where are you on the road to retirement?
Retirement planning isn’t the same for everyone.
Take our 2-minute quiz to find out which stage you’re at and what you could focus on next.
What are the contribution limits?
Under the downsizer rules, you are allowed to contribute up to $300,000 ($600,000 for a couple) from the sale proceeds of your eligible property.
The contribution limit is the lesser of this amount and the gross sale proceeds. For example, if couple sell their property for $500,000, their combined maximum downsizer contribution is $500,000 (not $600,000). Giving a property away won’t allow you to make a downsizer contribution because the sale proceeds are zero.
Any debt or remaining mortgage on the property does not impact the amount you are permitted to contribute into your super account.
To sweeten the deal, eligible downsizer contributions are exempt from many of the normal contribution caps and rules limiting what you can put into your super account. Contributions made using the downsizing rules do not count towards either your annual concessional (before-tax) or non-concessional (after-tax) contributions cap.
Downsizer contributions can be made in addition to any concessional and non-concessional super contributions you make, without needing to worry about exceeding your annual cap amounts.
Which super contributions can you make?
Answer a few questions to see which types of contributions may be open to you.
Is my property eligible?
While the downsizer rules are generous, it’s essential to ensure your property is eligible before you sell.
The key criteria are:
- You must have owned your property for a continuous period of at least 10 years. This is usually measured from the date of your original settlement when you purchased the property, to the settlement date when you sell it.
- The property being sold must be at least partially exempt from capital gains tax (CGT) under the main residence exemption. This means it was your principal residence for some or all of the time you owned it.
- The property must be in Australia.
Some types of property are not eligible under the downsizer rules. These include caravans, houseboats and other mobile homes. Vacant blocks of land are also ineligible.
How downsizer contributions affect your super
Downsizer contributions don’t count towards any of your annual contribution caps and won’t affect your total superannuation balance (TSB) until it’s re-calculated at the end of the financial year on 30 June. You can make a downsizer contribution even if your most recent TSB is above the general transfer balance cap for the year.
Once downsizer contributions are in your super account, they are subject to the normal tax rules governing the super system. That means when you move into the retirement phase and start drawing a super pension, your investment earnings are tax free. If you invest the proceeds from your sale outside the super system, however, you will be liable for tax on any income from your investments.
Although downsizer contributions don’t immediately count towards your TSB, they do count towards your transfer balance cap (TBC) if you use the amount you contributed to start a pension. This cap limits the amount you can move from your accumulation account into the tax-free retirement phase. Your downsizer contribution is also counted when assessing your eligibility for the Age Pension (see section below).
If you have reached your personal TBC (between $1.6 million and $2.1 million), downsizer contributions must stay in your accumulation phase super account, where any investment earnings will be subject to tax at 15%.
Deadlines and additional rules
The downsizer contribution is a once only concession.
You can’t make another downsizer contribution for the sale of a second home, or for the sale of a remaining interest in the property.
You are permitted to make multiple downsizer contributions to different super funds, up to the combined maximum of $300,000 per person, but they must all relate to one property sale.
For your downsizer contribution to be eligible, you must complete the ATO’s Downsizer contribution into superannuation form or the form required by your super fund. If you make multiple downsizer contributions or contribute the money to different super funds, you must provide a completed form for each contribution.
The form allows your super fund to confirm on behalf of the ATO that you have met all the eligibility requirements for making a downsizer contribution. It must be submitted to your super fund when you make your contribution, or prior to making it.
How will it affect my pension entitlement?
Before rushing off to sell your home and make a downsizer contribution into your super account, don’t forget it may have an impact on any pension you receive from the government. It could reduce – or even eliminate – your entitlement to an Age Pension or DVA service pension.
When you own a home (your main residence), it is exempt from means testing. Selling the home and contributing to super or retaining the funds in other assets that are not your main residence can increase the assets and income assessed in Centrelink means tests and reduce your entitlements. However, it’s also important to note that super benefits in an accumulation account are not included in Centrelink means tests until you reach 67. If you or your spouse are under 67, making a contribution to an accumulation account could increase Centrelink benefits.
Special rules are available to preserve your entitlements if you’ve sold your home and intend to use the proceeds to build or purchase a new home at a later date.
If the property you’re selling is not your current home, its value is already assessed in Age Pension means tests.
We’ve put together some detailed case studies to illustrate how a downsizer contribution can affect Age Pension.
Common questions about downsizer contributions
Downsizer contributions raise plenty of questions, so we’ve answered some common ones from SuperGuide members below.
Q: Can you explain the 90 day criteria to qualify for a downsizer contribution?
A: Under the downsizer contribution rules, you must make your contribution(s) within 90 days of receiving sale proceeds from the eligible property. The day you receive the proceeds is generally the settlement date of the contract of sale.
You need to apply for an extension if you require a longer period due to circumstances outside your control, such as ill health or a family death.
Q: I am currently retired and 71 years old and my wife is 51 and still working. I understand that after reaching age 75 I cannot contribute further to super. It is possible that we will downsize our property, so my question is can I still pay a downsizer contribution into my super accumulation account once I reach 75 or 75+? My understanding is that any downsizer contribution does not affect my super caps, and even if my wife and I contribute $300k each from downsizing we will still be nowhere near the transfer balance cap.
A: Yes, you can make a downsizer contribution after age 75. This contribution type is available to people aged 55 or more, with no upper age limit.
You may make a downsizer contribution even if your total super balance exceeds the transfer balance cap, and the contribution is not counted towards either the concessional or non-concessional contribution caps.
Q: When making a downsizer contribution does this increase the tax free % of the super balance?
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Q: Once a super fund is in pension mode you cannot make any more contributions. Is the downsizer contribution exempt from this rule, or do you have to be in accumulation mode to make a downsizer contribution?
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Q: Can you add to super at age 73 if you are not working? If we sell the house, we can each put in $300,000, as we meet the downsizer rules. What are the cons of a downsizer contribution?
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Q: Would there be any circumstances where we could sell our home at 8-9 years instead of 10 years (and still access downsizing superannuation contributions)? We would be moving from a 5-6 bedroom house to a 3 bedroom unit.
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Q: I lived in a home for 18 years then we moved out to another home. After we moved out we rented the first home for 2 years and sold it recently. I am not sure if we are eligible to make a downsizer contribution from the proceeds as I understand we need to pass the “main residence” or partial “main residence” for CGT purposes test. I understand we are partially exempted from CGT for the period we lived in it. We fulfilled all other eligibility tests but are not sure about this test. Can you please share your thoughts?
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Q: I live in a lifestyle community and the operator has a buyback arrangement. Are the buyback proceeds eligible for a downsizer contribution, and what do I need to check?
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Q: If my wife and I sell our home under the downsizing rules and want to put $300K each into super, what if I have an existing super account but my wife, who is 78, doesn’t have a super account? Can she open a new super account to invest the $300K?
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Q: I have used all of my personal transfer balance cap. I’m now looking at making a downsizer contribution. From what I’ve read, any downsizer sums must stay in accumulation where someone has reached their personal TBC. Is there any option where I could commute part of my pension back to accumulation, take a lump sum withdrawal from accumulation and then start a new pension up to my TBC once more?
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Q: Can you advise me whether both the Downsizer Rule and the Bring Forward Rule can be used concurrently? For example to facilitate 2 large amounts from the sale of one’s residential home going into one’s Super Accumulation account?
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Q: We are selling our home and won’t buy our next one for several months, and are trying to determine the best place to “park” our cash before the purchase. We have owned the home for ten years and meet the other requirements for a downsizer contribution. My husband is 64, will finish work before the sale and move to pension phase. On the sale he will make a $300k downsizer contribution and a $200k non-concessional contribution. Can he then withdraw this $500K before the end of the financial year to buy the new home, given he has met a condition of release (age 64 and no longer employed)? As he has earned income during the year, can he also make concessional contributions for that year? I turn 65 shortly before we buy and remain in full time employment. I will also make a $300k downsizer contribution and a $200k non-concessional contribution, then withdraw the $500k once I turn 65 and have met a condition of release.
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Members can read every answer on our guides, plus access member-only webinars, calculators and tools.
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