Changes to Downsizer Contributions

The Treasury Laws Amendment (2022 Measures No. 2) Bill 2022 received royal assent on 12 December 2022.

This included the proposed reduction of the eligibility age to make downsizer contributions from 60 to age 55.

It also included a proposal to exempt proceeds that are intended to be used to purchase another main residence from social security asset testing for up to 2 years. Additionally, the lower deeming rate will apply to these proceeds for income testing purposes where applicable.

Why is the downsizer contribution important?

The downsizer contribution allows individuals to contribute $300,000 (each) from the proceeds of the sale of their home, irrespective of their age and Total Super Balance (TSB).

Quantifying the benefit / case study:

Consider a wealthy couple that:

• Are no longer eligble to make non-concessional contributions due to their Total Super Balance exceeding allowable limits ($1.7m at the time of writing)

• Are generating passive income of over $200,000 from their personally held investments and are therefore on the top marginal tax rate of 47% including medicare levy

Ordinarily, the proceeds from the sale of their home would not be able to be contributed into Superannuation and instead must sit outside the Superannuation environment.

Using the downsizer contribution, this couple may contribute a combined $600,000 from the sale of their home into Superannuation.

This allows the taxable income generated from this $600,000 (assume 4% - $24,000) to be taxed at 15% inside Superannuation instead of 47% outside of Superannuation. This can provide an annual tax savings of $7,680 per annum for the remainder of the couple’s lifetime.

TIP: Even if all of the sale proceeds are being used to purchase a new home, you can still contribute $600,000 into Super, using existing funds to purchase your new property.

TIP: This can still be very beneficial for individuals with average means