Budget 2022- Downsizer extension

 Extension to Downsizer Contribution rules – Budget 2021-2022 Announcement

In 2017-2018 Budget, the Government at the time announced reforms that would assist in reducing the pressure on housing affordability in Australia – one of which was the Downsizer contributions measure.  From 1 July 2018, individuals 65 years of age or older who met the eligibility requirements could make a contribution of up to $300,000 from the proceeds of selling their main residence. The Government’s announcement during the 2021-2022 Budget extends the age group eligible to make contributions to those 60 years of age and older.

What are the current eligibility requirements for the downsizer contribution measure?

An individual would be eligible to make a downsizer contribution to their super, if they met all of the following conditions:  

• You are 65 years or older at the time of making the downsizer contributions (there is no upper age limit)
• The amount contributed is from the proceeds of selling your home where the contract of sale exchange on or after 1 July 2018
• Your home was owned by you or your spouse for 10 year or more prior to the sale – calculated with reference to date of settlement of purchase to date of settlement of sale
• You home is in Australia and is not a caravan, houseboat or other mobile home
• The proceeds (capital gain or loss) from the sale of the home are either exempt or partially exempt from the capital gains tax under the main residence exemption or would be entitled to such an exemption I the how was a CGT rather than pre-CGT asset
•  You have provided your super fund with the Downsizer contributions into super form either before to at the time of making your downsizer contributions
• You make your downsizer contributions within 90 days of receiving the proceeds of sale, which is usually at the date of settlement
• You have not previously made a downsizer contribution to your super form the sale of another home

The rules also allowed to a spouse who did not have an ownership interest in the home sold to make a downsizer contribution into their own super fund where they meet all of the other requirements.  

What is the downsizer contribution amount?

Each spouse can make a contribution up to the maximum of $300,000 each. However, the contribution amount cannot be greater than the total proceeds from the sale of the home.

For example, if the proceeds from the sale of your home was $400,000 and you wanted to make a contribution for both your spouse and yourself- the total contribution amounts between the two of you could not exceed $400,000. This will mean that the unused cap will be lost.

How do I make the contribution?

Downsizer contributions can be made in multiple payments from the proceeds of a single sale- however must be contributed within 90 days of receiving the proceeds of sale. In some unique circumstances (eg. Ill health, death, moving home), a extension may be granted – however the extension must be requested prior to the 90 day period ending.

Further, you will need to check with your super fund to ensure that your fund accepts downsizer contributions.

What happens if the downsizer contribution is not accepted, or I didn’t meet all of the requirements when I made the contribution?

If the ATO determine that you did not meet the downsizer contributions eligibility requirements at the time of making the contribution, your super fund will need to assess whether the contribution can be reclassified. Where the contribution can be accepted, it may count towards your non-concessional contribution cap. If the contributions cannot be accepted, the contributions will be returned to you by your super fund.

What changes will result from the proposed extension to age limit?

The proposed changed to extend access to the Downsizer contribution measure will allow individuals who are 60 or older to make further contributions into their superfund. We would expect this would affect couples where one spouse is over the age of 65, but the other 60 or above- now both spouses can make a contribution into their super funds.

The Government has indicated that it expects the extension will start from 1 July 2022. This is subject to the amending legislation receiving Royal Asset - i.e. the amending legislation being enacted.

How can Tax Controversy Partners help you?

Prior to making a downsizer contribution, you should obtain advice on the impact a contribution into super may have on eligibility for other government benefits, such as the age pension. Further, until the law is enacted, individuals over 60 will not be able to access the Downsizer contributions measure.

At Tax Controversy Partners, our experienced lawyers can assist you in navigating the complex government benefits legislation to understand your eligibility for the age pension if you make a downsizer contribution. Further we are able to assist with contribution strategy for individuals looking to contribute over the downsizer cap.  Please contact us using our online contact form, via email at admin@taxcontroverypartners.com.au or by phone at 02 8513 3813.