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Downsizing: a once-in-a-lifetime 90-day opportunity

The ‘downsizer contribution’ was introduced by the government as one of a number of measures aimed at improving housing affordability. The measure gives those age 65 and over the opportunity to contribute up to $300,000 as a result of selling a qualifying property without the standard contribution eligibility rules applying.

The label ‘downsizer’ is a misnomer – there’s no requirement to buy a lower priced or smaller home. In fact, there’s no requirement that a replacement home be purchased at all, so a client could qualify where they sell their property and decide to rent, relocate to another property they already own, or move into an aged care facility. Likewise, a client could upsize and buy a more expensive home, provided there is sufficient capital available to otherwise fund the downsizer contribution.

A significant policy development

Clients aged 65 and older are generally only be able to contribute to superannuation where:

  1. the work test is met (ie gainful employment of 40 hours in 30 consecutive days), and

  2. the contribution is made before 28 days of the end of the month in which the client turns age 75.

Exceptions to this rule apply for mandated employer contributions, such as Superannuation Guarantee.

Downsizer contributions are a significant expansion of the super contribution rules because they are not:

  • subject to the work test

  • subject to any maximum age limit

  • counted towards the client’s concessional or non-concessional contribution caps

  • limited in any way by the client’s total superannuation balance.

The removal of the maximum earnings test means certain personal contributions can be claimed as a tax deduction, subject to the concessional contributions cap. However, a tax deduction can’t be claimed in relation to downsizer contributions.

How much can be contributed?

The maximum downsizer contribution is the lesser of:

  • the capital proceeds from the sale, and

  • $300,000.

Each member of a couple has a limit of $300,000, so a couple may contribute up to a maximum of $600,000 combined, depending on the capital proceeds from the sale.

Example 1:

Margaret and John own a unit that is their main residence which they sell for $550,000. Assuming they are both eligible to make downsizer contributions and Margaret decides to maximise her downsizer contribution by contributing $300,000, John’s maximum downsizer contribution would be $250,000 (ie sale proceeds of $550,000 less Margaret’s contribution of $300,000).

Capital proceeds are the amount the seller is entitled to receive in relation to the sale. Any liabilities associated with the property or expenses associated with the sale are ignored when determining the amount of capital proceeds.

Example 1 (continued):

From the proceeds from the sale, Margaret and John use $50,000 to repay the outstanding debt and $30,000 to pay their real estate agent and solicitor. Despite these subsequent outgoings, the capital proceeds and therefore maximum combined contribution remains at $550,000.


Downsizer contributions can be made where the exchange of contracts relating to the sale occurs on or after 1 July 2018. The time contracts are exchanged is relevant, rather than when settlement occurs. If the exchange of contracts occurs before 1 July 2018 but settlement occurs on or after this date, a client wouldn’t be eligible to make a downsizer contribution.

Example 2:

Jean originally intended to auction her home on 23 June 2018 with settlement to occur on 3 August 2018. If the property sold at auction, the exchange of contracts would occur on the auction day. As this is before 1 July 2018, Jean wouldn’t qualify for the downsizer contribution despite settlement occurring after 30 June 2018. As a result, Jean decides to delay the auction until 7 July 2018.

A further requirement is for the contributor to be 65 or over at the time the contribution is made. Unlike most other contribution types (mandated employer superannuation contributions excepted) there is no upper age limit. An individual could be 64 when they exchange contracts and even when settlement occurs, as long as they are at least 65 when the contribution is made.

The contribution must be made within 90 days of the change of ownership. The Commissioner of Taxation has the power to extend this period upon request. For example, the period may be extended where an extended settlement period is necessary due to circumstances outside the control of the individual looking to make the downsizer contribution.

Example 2 (continued):

Assuming Jean’s property sells at the auction and settlement occurs on 15 August 2018, if Jean turns 65 on 1 September 2018, she must at least wait until her birthday to make the contribution. She must also make sure she meets the 90-day time limit, which ends 13 November 2018.

We can see from the timeline above that Jean has waited to at least 1 July 2018 to exchange contracts and does so on 7 July 2018. Settlement occurs on 15 August 2018 and for someone who is already at least 65 would have 90 days from settlement to make the contribution. Jean’s contribution window is shortened as she is 64 at settlement and needs to wait until she turns 65 to make the contribution. Jean has from her 65th birthday (1 September 2018) to the end of the 90 period (13 November 2018) to make the downsizer contribution.

Multiple downsizer contributions can be made in relation to the sale of the one property, however, all contributions must be made within the 90-day time frame. The downsizer rules limit contributions to one property and can’t be used where a subsequent property is sold.

Clients need to provide the fund with an election form either before or at the time of making the downsizer contribution.

Ownership requirements

To qualify, the property being sold must have been owned for at least 10 years. The ownership period would usually be from the settlement date of the original contract to purchase the property to the settlement date of the later contract and includes ownership by the individual, their spouse or former spouse. The ownership period also incorporates the time a deceased spouse owned the property and the time where ownership was held by the trustee of the deceased estate.

Each member of a couple is able to make a downsizer contribution irrespective of who owned the property. For example, even if one spouse solely owned the property for the whole ownership period, both members may be able to make downsizer contributions.

Example 2 (continued):

At the time of settlement Jean has owned her property for four years. Ownership was transferred from her former spouse when they divorced. Her former spouse had owned the property for six years so the combined ownership period was 10 years.

Full or partial main residence CGT exemption

The property being sold needed to be the seller’s main residence at some point in time and be eligible for either a part or full main residence capital gains tax (CGT) exemption.

The property may have been the individual’s main residence when first acquired or initially purchased as an investment and later lived in. In both cases, provided a partial main residence CGT exemption is available, downsizer contributions may be made.

Furthermore, properties that were purchased prior to 20 September 1985 (ie before the introduction of CGT) are treated as being purchased post this date for the purpose of determining whether downsizer contribution can be made.

Availability of the full or partial main residence exemption may not always be obvious. For example, long ago the property may have been your client’s main residence for a very short period of time. Alternatively it may have been their main residence since acquisition in the 1970s, and so is a pre-CGT asset.


An individual’s main residence is exempt from Centrelink means testing. However, if the property is sold, the sale proceeds will generally become an asset assessable under the assets test, with income (if any) assessable under the income test. The latter applies unless the individual intends to use the proceeds to purchase a new main residence within 12 months, in which case the sale proceeds will be exempt from the assets test, but income may be assessed under the income test.

For income support recipients looking to make a downsizer contribution, one consideration is that superannuation benefits in retirement phase are assessable for Centrelink purposes. Benefits retained in accumulation phase are assessable once the income support recipient reaches age pension age.

Practically, this means income support recipients who sell their main residence and make a downsizer contribution may see an increase in the amount of assets and income that are assessed by Centrelink, and potentially a reduction in their income support benefits.

For couples where one member of the couple is below age pension age and one is above age pension age, it may be worth considering, rather than making a downsizer contribution, making a non-concessional contribution to the younger spouse’s account instead of a downsizer contribution for the other spouse. Where that contribution is retained in the accumulation phase, the amount will be excluded from means testing until the younger spouse reaches age pension age.

A detriment of retaining a non-concessional contribution in the accumulation phase is that earnings will be subject to tax. For the strategy to benefit the client, the Centrelink benefits obtained must be greater than the additional tax incurred in the accumulation phase.


The concessionally taxed superannuation environment often makes contributing to superannuation an attractive option. However, superannuation won’t always be the most tax-effective option, particularly for those clients with minimal taxable income in their own name. Consideration should therefore be given to the taxation implications of contributing the sale proceeds to superannuation compared with investing the proceeds in their own name outside superannuation.

Taxation inside superannuation will depend on whether the individual has transfer balance cap space remaining and whether the contribution can be moved to a pension where earnings will be tax free. For someone who has used their transfer balance cap and retains the contribution in the accumulation phase, a 15 per cent tax rate will apply on earnings.

When comparing the tax implications outside superannuation it’s important to consider the amount of taxable income and any tax offsets the individual is entitled to. For those who have reached age pension age, the effective tax free threshold is $32,279 for singles and $28,974 for each member of a couple after accounting for the low income and seniors and pensioners tax offset.


The new downsizer super contribution rules commence on 1 July 2018 and represent a new opportunity for those selling an eligible property to contribute up to $300,000 to superannuation without the restrictions that generally apply to older individuals.

For a property to qualify, it must be eligible for a part or full main residence CGT exemption, or would have if it wasn’t a pre-CGT asset. The sale of investment property should be investigated for a period of residence and therefore a partial main residence exemption. Given the 90-day time limit for making the contribution, the investigation should occur as soon as possible as waiting until the completion of the tax return will often be too late.

Further key qualification criteria include that the exchange of contracts occurs on or after 1 July 2018, the contributor be age 65 or over and the property be owned by the individual, spouse or former spouse for at least 10 years.


This information is current as 04/05/18.

This article has been prepared by Heart1Stop, a social media brand owned by Heart Mortgage Services and Heart Financial Advisers. The information contained in this article is an overview or summary only and it should not be considered a comprehensive statement on any matter nor relied upon as such. The views expressed here are not those of Heart1stop, Heart Mortgage Services, Heart Financial Advisers, shareholders, directors or staff and associated contractors and business associates. This article has been prepared without taking into account any person’s objectives, financial situation or needs. Because of this, you should, before acting on any information contained in this article, consider its appropriateness, having regard to your objectives, financial situation or needs. Any taxation information contained in this article is a general statement and should only be used as a guide. It does not constitute taxation advice and is based on current laws and their interpretation. Each individual’s situation may differ, and you should seek independent professional taxation advice on any taxation matters. While the information contained in this article may contain or be based on information obtained from sources believed to be reliable, it may not have been independently verified. Where information contained in this publication contains material provided directly by third parties it is given in good faith and has been derived from sources believed to be accurate at its issue date. It is not the intention of Heart1Stop or Heart Mortgage Services and Heart Financial Advisers that this publication be used as the primary source of readers’ information but as an adjunct to their own resources and training. To the maximum extent permitted by law: no guarantee, representation or warranty is given that any information or advice in this publication is complete, accurate, up to date or fit for any purpose; and no party of Heart1Stop or associated entities as mentioned is in any way liable to you (including for negligence) in respect of any reliance upon such information. This article may also contain links to websites operated by third parties ("Third Parties") who are not related to Heart1Stop. These links are provided for convenience only and do not represent any endorsement or approval by us.

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