Explore About Downsizer Contribution

The term Downsizer Contributions refers to the superannuation contributions which is sourced from the sale proceedings of current or former principal residence of either taxpayer or spouse. The ATO’s latest amendments and current superannuation legislation are done so as to reduce the pressure on housing affordability in Australia. The primary parameters that need to be kept in mind are that the ATO’s latest amendments are only applicable for the contracts signed on or after July 1, 2018.

About Downsizer Measure

  • From July 1, 2018, the individuals whose age is 65 years old or greater are eligible to make a downsizer contribution not exceeding $300,000. This means that with the sale proceeds of the real estate property, the maximum amount that a member can contribute to the Superannuation Fund would not exceed more than $300,000 in any case.
  • This contribution will not be considered under non-concessional contribution and would not be counted under the member’s contribution caps. Also, this contribution can be made even if the member’s share is equal to or above $1.6 million.
  • The downsizing contribution can be made at any point of time within 90 days of the sale of the property regardless of the June 30 TSB. Once the contribution is done, the future application for the member’s TSB would increase.
  • The contribution will be counted under the transfer balance cap, which is currently restricted to $1.6 million. This is applied only when the member is transferring the super savings into retirement phase.
  • The downsizer contribution is only limited to the sale of one home. This means that at the time of sale of the second home, the downsizer contribution is not applicable or is considered invalid. The downsizer contribution being made towards superannuation fund is not tax deductible and would be taken into account for the age pension eligibility determination.

How to be Eligible for the Downsizer Contribution?

The eligibility criteria depend on the following pointers. If the member is able to answer all the below-listed questions as yes, then only the member is eligible to make a downsizer contribution:

  • Age limit: 65 years or above of age. No upper age limit for the same.
  • The amount for contribution is from the property sale proceedings wherein the Contract of Sale is on or after July 1, 2018.
  • The ownership of the house should be by the individual or the spouse for 10 years prior to the sale contract date (which is on or after July 1, 2018).
  • The house to be sold should be a brick and mortar space and should not be a mobile one.
  • The Downsizing Contribution can be partially exempt or fully exempt from Capital Gains Tax (CGT) under the main residence exemption. The member can also be entitled to other exemptions if the property for sale was CGT rather than pre-CGT, meaning acquired under September 20, 1985 assets.
  • The Downsizer Contribution into Super Form should be filled and submitted duly while making Downsizer Contribution.
  • The date of Downsizer Contribution and Date of Settlement of the Property should not exceed the limit of 90 days.
  • No Downsizer Contribution should be previously made from the sale of another property.

What if I am not able to make Downsizer Contribution on time?

When the individual is not able to make downsizer contribution for the factors beyond control, the member (s) may request for the same. The time extension request is to be made within 90 days from the date of the contract, as the Downsizer Contribution would be itself null and void after 90 days.

The primary reasons for the time extension of Downsizer Contribution may be granted but are not limited to:

  • Health Causes
  • Family Member Demise
  • Relocation

Summing Up, The downsizing contribution in SMSF may provide clients with the opportunity to contribute for a tax-exempt retirement phase pension, subsequently provisioning tax-free income payments from the pension.

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