Downsizer Contributions: Your Guide to Boosting Your Super

If you’re getting ready to sell the family home after years of memories, there’s some good news. The downsizer contribution rules might let you channel some of those proceeds straight into your superannuation, giving your retirement savings a welcome boost.

At TSP, we’ve helped many Newcastle and Hunter Valley families navigate this opportunity, so let me walk you through how it works.

What You Need to Qualify

To take advantage of downsizer contributions, you’ll need to tick a few boxes:

Age matters. You must be at least 55 years old when you make the contribution. Your spouse can be a different age, which we’ll touch on in a moment.

The 10-year ownership rule. Your home needs to be located in Australia, and either you or your spouse must have owned it for at least 10 years. We’re talking about actual ownership here, measured from settlement to settlement.

The CGT exemption connection. Here’s where it gets interesting. Your home sale must be at least partially exempt from capital gains tax (CGT) under the main residence exemption. Notice I said “partially” – you don’t need a full exemption, which opens the door for quite a few people.

Timing is everything. You’ve got 90 days from settlement to make your contribution, and you’ll need to lodge the downsizer election form with your super fund by the time they receive the money. Miss this window, and the opportunity’s gone.

One shot per person. Each individual can only use the downsizer contribution once in their lifetime. You can contribute up to $300,000 per person (so $600,000 for a couple), but it’s capped at the gross sale proceeds.

Does Your Home Sale Need to Be Fully Tax-Free?

This is one of the most common questions we get, and the answer might surprise you.

No, you don’t need a full CGT exemption.

Perhaps you rented out part of your home for a while, or you moved out and leased the whole place for a few years before selling. As long as you qualify for at least a partial main residence exemption, you’re still in the game for downsizer contributions (provided you meet all the other conditions, of course).

Do You Need to Be Living There When You Sell?

Another great question, and again, the answer is no.

Your home doesn’t have to be your current principal residence at the time of sale. Many of our clients have moved into something smaller or closer to family while renting out the old place. As long as your ownership and residence history supports at least a partial main residence exemption, you can still qualify.

What About Properties Owned Before CGT Started?

If you bought your home before CGT commenced (before 20 September 1985), there are special rules. We’ll look at whether part of the gain would have been disregaged if CGT had applied.

One important catch: there must be an actual dwelling on the property that qualifies as a main residence. If you’re selling vacant land, it generally won’t meet the downsizer requirements, even if you lived there years ago before the house was demolished.

Can My Spouse Contribute if They’re Not on the Title?

Absolutely, and this is really common in Newcastle where we often see one spouse listed on older property titles.

Your spouse can still make a downsizer contribution even if they weren’t an owner, provided they meet all the other requirements. The key is that they must have actually lived in the property and could reasonably have treated it as their main residence.

If your spouse never lived there, they’re unlikely to qualify.

When Can You Actually Access the Money?

Here’s the part where we need to pump the brakes a bit.

A downsizer contribution isn’t a free-for-all cash grab. It’s subject to the standard superannuation preservation rules, which means you can’t access it until:

You reach your preservation age (currently between 58 and 60, depending on when you were born) and retire, or
You turn 65, regardless of whether you’ve retired

This is crucial to understand before you contribute. If you’re 56 and thinking you’ll use this money for a renovation on your new place, that’s not going to work. Make sure you’ve got enough cash flow to cover your needs before locking funds away in super.

Before You Take the Plunge

Downsizer contributions can be a brilliant strategy for the right situation, but as you can see, there are quite a few moving parts. The 90-day deadline is unforgiving, the one-time-only rule means you need to get it right, and the preservation requirements mean this isn’t suitable for everyone.

That’s where we come in. At TSP, we’ve been helping Newcastle families with their accounting and superannuation needs for over 42 years. We’ll look at your specific situation, check your eligibility, help you understand the timing, and make sure you’re making the right decision for your retirement.

Ready to talk about your downsizer contribution options? Call us on 4926 4155 or email ad***@****************om.au. Let’s make sure you get this right the first time. Contact us here

Frequently Asked Questions About Downsizer Contributions

Q: Do we have to buy a cheaper or smaller home to use downsizer contributions?

A: No! Despite the name “downsizer,” there’s actually no requirement to downsize at all. You could sell your $800,000 home and buy a $1.2 million apartment, and still make a downsizer contribution. The name is a bit misleading – it’s really just about the contribution type, not what you do with the remaining proceeds.

Q: What happens if we miss the 90-day deadline?

A: Unfortunately, if you miss the 90-day window from settlement, you’ve lost the opportunity for a downsizer contribution on that property sale. There are no extensions or second chances. This is why we always recommend getting in touch with us before settlement, not after. We can help you set up reminders and ensure everything’s lodged on time.

Q: Can we each contribute $300,000 if we owned the house together?

A: Yes! If you’re a couple and you jointly owned (or one owned and the other lived in) the property, you can each contribute up to $300,000, for a total of $600,000. However, you can’t contribute more than the gross sale proceeds. So if you sold for $500,000, the maximum combined contribution would be $500,000, split however you choose between you.

Q: What if we used part of our home for business purposes?

A: This is where it gets technical. If part of your home was used for business and you claimed deductions for it, you may not get a full main residence exemption. But remember, you only need a partial exemption to qualify for downsizer contributions. We’d need to look at your specific situation – how much of the home, for how long, and what deductions you claimed. Give us a call and we’ll work through it with you.

Q: Do we have to contribute the full $300,000 each?

A: Not at all! The $300,000 is a maximum, not a requirement. You can contribute any amount up to that limit (or up to the sale proceeds, whichever is less). Many of our clients contribute less because they need to keep cash on hand for their new home, living expenses, or simply because they don’t want to lock everything away in super.

Q: We sold our home 6 months ago. Can we still make a downsizer contribution?

A: Unfortunately not. The 90-day deadline from settlement is strict, and there are no exceptions. This is one of the reasons why planning ahead is so important. If you’re thinking about selling your home in the future, have a chat with us early in the process so you understand all your options and deadlines.

Q: Will a downsizer contribution affect my Age Pension?

A: It can. Money in superannuation is generally assessed under the assets test (and deeming rules under the income test) for Age Pension purposes. A large downsizer contribution could potentially affect your Age Pension entitlement. This is a complex area that requires careful planning, especially if you’re close to Age Pension age or already receiving it. We can work through the numbers with you.

Q: What if our super fund doesn’t accept downsizer contributions?

A: Most super funds accept downsizer contributions, but it’s worth checking with yours before you proceed. If your current fund doesn’t accept them, you may need to open an account with a fund that does. We can help you navigate this and ensure you choose a suitable fund.

Got more questions about downsizer contributions or selling your family home? We’re here to help. Call TSP on 4926 4155 or email ad***@****************om.au for personalised advice.

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Downsizer Contributions and the Main Residence Exemption