Downsizer contribution

downsizer contribution
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What is the Downsizer Contribution
Benefits of the Downsizer Contribution
How much can you contribute
How does it affect your contribution caps
Interactions with other strategies
Do you need to notify anyone
Do you need to buy another property
Who is eligible to make a Downsizer Contribution
The downside of the downsizing

What is the Downsizer Contribution

If you are 55 or older and meet the eligibility requirements, you can make a Downsizer Contribution into your super of up to $300,000 ($600,000 for a couple) from the proceeds of selling your home to help grow your retirement nest egg.

Benefits of the Downsizer Contribution

While there is no tax deduction on the contribution as there is for concessional contributions, the benefit of the downsizer contribution is that it allows you to get a large amount of assets into a low-tax environment (and eventually into a zero-tax environment).

When you meet a condition of release, you can transfer your money across to an account-based pension, which has the following lucrative advantages:

  • zero tax on investment earnings (both income and capital gains)
  • zero tax on the income you receive (if you are over 60), and
  • zero tax on lump sum withdrawals.

By moving more of your assets into super, you can have more of your assets that can continue to grow in a tax-free environment.

How much can you contribute with the Downsizer Contribution

You can contribute up to the lesser of $300,000 (per person) and the proceeds in the sale contract. So if your home sells for less, the combined contribution limit will be restricted by that amount. And if you gift your property (for instance, to a family member) and therefore the sale proceeds are even lower (or zero), you will similarly be restricted by that.

Any mortgage or other debt on the property will not affect the amount you can contribute.

How does the Downsizer Contribution affect your contribution caps

Contributing to super

What is interesting is that the Downsizer Contribution is neither a concessional nor a non-concessional contribution and will not count towards either of those contribution caps.

A Downsizer Contribution can even be made if your Total Superannuation Balance exceeds the $1.9m Transfer Balance Cap, so your super balance is irrelevant in terms of eligibility to contribute under the downsizer rule.

As a result of it not being considered a concessional nor a non-concessional contribution, you could combine it with the bring-forward rule (and the carry-forward rule), provided you meet all the eligibility requirements for each of the rules.

Your Downsizer Contribution will not affect your total superannuation balance (TSB) until your TSB is re-calculated to include all your contributions, including your Downsizer Contributions, at the end of the financial year (more on this in the next subheading under ‘timing of your contribution’).

Moving your super to an account-based pension

The Downsizer Contribution will still, however, count towards your Transfer Balance Cap (TBC). The Transfer Balance Cap the limit you are allowed to transfer from your super accumulation account (which is taxed at 15% on investment earnings) into a super account-based pension in retirement (which has no tax on investment earning).

Downsizer Contribution interactions with other strategies

The bring forward rule

As the Downsizer Contribution does not count towards your contribution caps, you can potentially contribute $300,000 (each) under this strategy and $330,000 (each) under the bring-forward rule for a total of $630,000 each or $1,260,000 combined in one financial year. It doesn’t matter where the $330,000 for the bring forward rule comes from, so it could also be from proceeds from the sale of your house.

If you have even more cash available before that year, you could even put in $110,000 (each) as a non-concessional contribution in the preceding financial year, followed by the above amounts, for a total of $740,000 each or $1,460,000 combined over two financial years.

Timing of your contribution – total super balance and catch-up contributions

Important planning consideration

While concessional, non-concessional, and total super balance are irrelevant for the downsizer contribution, once the next financial year rolls around after your Downsizer Contribution, your Total Super Balance (TSB) now includes your Downsizer Contribution, so be careful about adding your Downsizer Contribution first, as you may not be able to contribute your additional $330,000 in future years, depending on your Total Super Balance, or may not be able to make catch-up contributions in future years.

If you are below the $500,000 limit for catch-up contributions, a downsizer contribution could put you over the limit, which would make you unable to make catch-up contributions from the following financial year.

If are $300,000 below the $1.9m Transfer Balance Cap, you could contribute $300,000 as non-concessional contributions as well as $300,000 under the downsizer rule. However, if you contribute $300,000 under the downsizer rule, pushing your TSB over the TBC of $1.9m by the end of this financial year, you will no longer be able to contribute the non-concessional contributions in the next financial year.

So it is worth considering whether to plan your sale and downsizer contribution after these.

Recontribution strategy

You may want to contribute this into a separate super fund for the reasons explained in the recontribution strategy to reduce potential tax payable by beneficiaries that your super is paid out to upon your death.

Do you need to notify anyone

Yes! You need to notify your super fund that the deposit is a Downsizer Contribution by providing your super fund with the ‘Downsizer Contribution into super’ form either before or at the time of making your Downsizer Contribution – and within 90 days of receiving the proceeds of the sale. If you fail to do this, the contribution is likely to be accidentally counted as a non-concessional contribution that uses up your non-concessional contribution cap under the bring forward rule.

This was mentioned on a forum some time ago, where the person missed their chance to add an additional several hundred thousand dollars under the bring-forward arrangement and had to wait for three more years for that. And if their super balance were over the $1.9m limit, they would no longer have been able to contribute the additional funds at all.

Do you need to buy another property

No, and not only is there no requirement to buy a smaller or cheaper house with the proceeds, but there is also no requirement to buy another property to be eligible to make a Downsizer Contribution. You can even go ahead and buy a more expensive property and still be eligible to make the Downsizer Contribution.

Who is eligible to make a Downsizer Contribution

  • You are at least 55 (but unlike other voluntary super contribution that cut out at 75, there is no maximum age limit, and no work test)
  • The amount you are contributing is from the proceeds of selling your home
  • Your home was owned by you or your spouse for 10 years or more prior to the sale
  • It was your primary residence (i.e., you lived in it), but not necessarily for the whole period
  • Your home is in Australia and is not a caravan, houseboat, or other mobile home
  • You have provided your super fund with the ‘Downsizer Contribution into super’ form either before or at the time of making your Downsizer Contribution
  • You make your Downsizer Contribution within 90 days of receiving the proceeds of the sale, which is usually at the date of settlement
  • You have not previously made a Downsizer Contribution to your super from the sale of another home.

The downside of the downsizing

The decision to downsize needs careful consideration because there are two potentially extremely large costs to downsizing.

1. Irrecoverable costs

The cost of downsizing includes large irrecoverable costs.

  • Selling costs of about 2.2% of the existing house price to the selling agent ($26,400 on a 1.2 million dollar home)
  • 1-2% to make the house presentable for the sale ($12,000-$24,000 on a 1.2 million dollar home)
  • up to 5% of the new house in stamp duty ($40,000 on an $800,000 home).

Then, on top of this significant loss of capital (and all future earnings on that capital), you are foregoing the growth of the asset, which is also capital gains tax free since it is your home.

2. Loss of age pension entitlements

In addition to the irrecoverable costs of selling and rebuying, you may lose a significant amount of ongoing age pension entitlements since the main residence is not counted in the age pension assets and income test, but your super is. More information on the age pension entitlements at Services Australia and this Age Pension Calculator.

The research paper, Optimal Annuitisation, Housing Decisions and Means-Tested Public Pension in Retirement, found that:

it is never optimal to downscale housing with the means-tested Age Pension when a reverse mortgage is available, only when there is no other way to access equity then downsizing is the only option.

The total cost of those over many years is likely to be a significant amount of money, so I would urge you to speak to a financial adviser to ask for projections that clearly show the dollar cost before making the decision of whether to downsize or not.

While downsizing is often an inferior financial decision, it can be a better lifestyle decision for some people. Maintaining a large property can be a lot of work. You also may want to downsize to a different type for property for non-financial reasons, such as a smaller property closer to your children and grandchildren. If you have a lot of cash outside super that you want to get in, the downsizer contribution could be a useful strategy.


In summary:

  • Up to $300,000 (per person), up to the sale proceeds – debt is ignored, as is whether proceeds are used to buy a new property
  • Either spouse must have owned the property for at least 10 years, and it must have been your primary residence for some of that time
  • No requirement to purchase another home
  • Does not matter where the money comes from. You could upgrade and use other money to fund the contribution
  • Concessional contribution cap, non-concessional contribution cap, and total super balance are irrelevant, and can be done at any age and without a work test
  • Can only be done once; must be contributed within 90 days of receiving the proceeds of the sale; and you must notify your super fund before or when making the contribution
  • The main benefit is getting money into a low (and eventually zero) tax environment
  • Be aware of the downsides of downsizing, which includes high costs and loss of part or all of age pension entitlements, which may mean you are not better off from downsizing.