6 minute read

The 411 on the Downsizer Super Contribution

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So you’re selling your family home. The real estate photos are taken, the floorboards have been polished, the walls are freshly painted, and buyers are circling your home like very welcome sharks. You’re about to jump into the downsizing deep end, and unlock a bunch of equity to splash out with. So let’s dive into what the downsizer contribution is, and how it works with super, with no more water-based puns, we promise.

What is the downsizer super contribution?

The downsizer contribution is a Government initiative designed to help downsizers pump up their supers without penalty or caps as they head into retirement. It’s a way to use the equity unlocked during the downsizing process to fund your retirement and make sure your super is nice and healthy when you tap into it. It’s important to note that the downsizer contribution isn’t tax deductible, and will be taken into account for the Age Pension asset and income tests.

How does the downsizer super contribution work?

If you’re eligible, you can add up to $300,000 into your super fund using money from the sale of your main residence, regardless of any caps or restrictions that usually apply to super contributions. That’s $300,000 straight into Future You’s pocket, thank you very much. It’s a smart way to invest in your future, but there are a few rules and regulations around the downsizer contribution process to consider.

Am I eligible?

Not everyone will be allowed to make this downsizer super contribution. You will be eligible to make a downsizer contribution if you can answer yes to all of the following:

  • You’re 65 years old or older at the time you make a downsizer contribution (there is no maximum age limit). This age limit will change to 60 or older from 1 July 2022.
  • The contribution is from the proceeds of selling your home, where the contract of sale was exchanged on or after 1 July 2018.
  • Your home was owned by you or your spouse for 10 years or more before the sale. This ownership period is based on the date between the settlement of purchase and the date of settlement of sale.
  • Your home is in Australia and is not a houseboat, caravan, or other form of mobile home.
  • You make your downsizer contribution within 90 days of receiving the proceeds of sale.
  • This is your first downsizer contribution. You can only do this once, so you can’t have previously made a downsizer contribution to your super from the sale of another home.

What are the benefits of utilizing the downsizer contribution?

Contribution caps don’t apply

Yay! It won’t matter how much you currently have in your super – the total super savings test doesn’t apply for downsizer contributions, so even if you have over $1.7 million in your super, you won’t get hit with tax.

May be more tax-efficient

The downsizer contribution is an after-tax contribution, so no tax is paid on the way in, which means it’s returned tax free when you access the funds in the future.

No work test requirements

A work test is usually done in order to make voluntary, before-tax contributions to your super once you turn 67. You must be able to show that you have been gainfully employed for 40 hours or more in any 30 day period in a financial year. There is absolutely no requirement to meet a work test or work test exemption for the downsizer contribution, which makes this a great option for retired or semi-retired people looking to pump up their super, and for anyone aged 75 or over, as outside of this opportunity, you can’t make voluntary contributions to your super anymore.

You don’t have to buy a new home

Just because it’s called a downsizer contribution doesn’t mean you absolutely have to downsize. The money you make from the sale does not have to be put towards purchasing a new home in order to use this contribution option, so you still have total freedom to choose where and how you live; from an off-grid mountain hut, to a combi van, or a Lifestyle Community home. Home is where the heart, and your extra $300,000 in super, is.

Is downsizing a good idea?

Downsizing is part of many people’s retirement planning, as unlocking the equity in your house and investing in a downsizer home can leave you with a significant amount of money to put towards things that will make you Capital H Happy; hobbies, holidays, homewares, hot cakes, helicopters, anything your heart desires. There are other financial benefits to downsizing, such as lower bills. With a Lifestyle Communities® home, you’ll be able to bask in bills so low they’d beat you at limbo; with sustainable features and energy efficient appliances in all Lifestyle homes. You’ll also save additional money with lower insurance premiums thanks to the added security of a gated community, no council rates, no water rates, and no stamp duty.

Whilst you don’t have to downsize in order to use the downsizer contribution option, many people choose to downsize because it makes life so much easier. We’re a little biased, but we believe that being able to kick back and relax in retirement shouldn’t be a luxury, but it should feel like one.

Downsizing with Lifestyle Communities® turns the life you’ve been dreaming of into a reality, offering affordable, modern homes, with resort-style amenities on your doorstep. You can embrace the holiday lifestyle everyday, relaxing in the bubbles of the spa, in the pages of a book in the on-site library, or in your own peaceful backyard. Apart from how much easier house maintenance is in a downsizer home (seriously, vacuuming will be so fast that the dog will barely have time to freak out), you’ll also find there are huge social benefits and heaps of environmental benefits to downsizing.

How you can utilize the downsizer contribution to maximize your retirement planning.

Ah, retirement planning. The joyous process of figuring out what life will look like when you have nothing but free time. Your budget will make up a big part of your planning, and adding to your retirement savings at any point is a good idea to help you kick back comfortably in retirement. Having an additional $300k waiting for you will make the budget look and feel very healthy, and having the additional funds from downsizing will help you live the kind of life you want.

If you’re ready to sell up and downsize to a bigger life, we’d love to chat with you about what that could look like with Lifestyle Communities®.

*This article provides general information only and should not be relied upon as personal financial advice. Lifestyle Communities® is not a financial adviser and you should consider seeking independent legal, financial, taxation or other advice to check how this information relates to your unique circumstances.