One of the least understood but most powerful keys to boosting superannuation balances is the so-called downsizer contribution.
The reason why it is perhaps so misunderstood is that you don’t actually even need to be downsizing to a smaller house to qualify and you don’t even need to be moving to a cheaper home either.
That means that when you sell an eligible property, you can use funds other than from the property sale to make the actual downsizer contribution.
The basics of the downsizer contribution is that you must have owned your current residence for ten years or more, that the sale proceeds are more than $300,000, be aged 55 or more and that you have reached a condition of release for your super.
Generally, that means you have stopped working and are aged 55 or simply being over the age of 65.
Freedoms around contribution not well understood
However, there is a lot of freedom around making a downsizer contribution which is probably why the significance of the concession is often underestimated.
One really significant benefit of the contribution is that it can apply at any age, even well after retirement and can apply to two members of a couple, who can contribute up to $300,000 each to their super funds.
The one caveat here is that the maximum downsizer contribution is limited so that it is no more than the total amount received from the sale of the home.
The general conditions include that the property is In Australia and is an actual building and not a caravan or boat.
A 90-day clock is ticking
The contribution also needs to be made within 90 days of receiving the money from the sale, so it is important to plan this aspect early to avoid problems.
Part of that preparation should include reading the downsizer contribution form and make sure the form is lodged with your super fund before or when you make the contribution.
Unlike many other forms of contribution, the downsizer one is not limited by any maximum age or limited by the amount you already have within super.
This makes it a particularly attractive way to substantially increase the amount you have within super – something that might take a lot longer if you were relying on conventional capped contributions.
One of the few contributions not counted for caps
In technical terms, a downsizer contribution is treated as a non-concessional (or non-tax-deductible) contribution, but it does not count towards either the concessional or non-concessional contribution caps.
That is important because it means other contributions won’t be stopped simply by making the one-off downsizer contribution.
Another important point to note is that the home being sold must be exempt or partially exempt from capital gains tax (CGT) under the main residence exemption, which basically means one member of the couple has been living there.
Interestingly, the downsizer contribution is not restricted by the total amount you have in super and is not counted against your transfer balance cap.
That means it is possible for a person to have more than the current $1.9 million pension cap and still make a downsizer contribution.
