Super downsizer scheme: The take up so far (and some common errors)

The “Reducing Pressure on Housing Affordability Measure” — a bill with a second part that is otherwise known as the super downsizer scheme — started on 1 July 2018 and has allowed older Australians to sell their homes and contribute up to $300,000 of the proceeds from the sale into super.

Recent figures from the ATO show that more than 5,000 people Australia-wide have made this type of contribution, with 55% being made by females.

You can only make downsizing contributions for the sale of one home. You can’t access it again for the sale of a second home. Downsizer contributions are not tax deductible and will be taken into account for determining eligibility for the age pension. If you sell your home, are eligible and choose to make a downsizer contribution, there is no requirement for you to purchase another home.

Existing contribution caps and restrictions do not apply to downsizer contributions. If your client meets the eligibility requirements, a downsizer contribution will not be treated as a non-concessional contribution and will not count towards their contributions caps.

It will however count towards your client’s:

  • total super balance when it is recalculated on 30 June at the end of a financial year
  • transfer balance cap, and can limit the amount that they can transfer to and hold in their retirement phase superannuation accounts. You can check your clients’ transfer balance caps in Online services for agents – Superannuation.

The ATO says it is seeing some common mistakes around eligibility for the downsizer measure. It reminds practitioners that it can pay to make sure your client is aware that:

  • your client or their spouse must have owned their home for 10 years or more prior to sale
  • the date for contract of sale must be on or after 1 July 2018
  • the proceeds from the sale of the home must be either exempt or partially exempt from capital gains tax under the main residence exemption, or would be entitled to such an exemption if the home was a CGT rather than a pre-CGT asset.

It is also necessary for your client to provide their super fund with the Downsizer contribution into super form either before or at the time of making your downsizer contribution. Also such contributions must be made within 90 days of receiving the proceeds of sale, which is usually at the date of settlement.

It is important that your client knows they are eligible before making a downsizer contribution. If a contribution is found to be ineligible, it could be re-reported as a non-concessional contribution and your client may receive an excess non-concessional contribution determination. The ATO also says that as such, “false and misleading” penalties may also apply.

Tax & Super Australia is hosting a workshop in Melbourne on 17 October that looks at the tax-effective use of SMSFs — including the new downsizer contribution, LRBAs, using the small business CGT concessions to best effect, and strategies for business real property. Places are limited. See more details here.

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