Taking advantage of the downsizer contributions cap

By Michael Mata

Taking advantage of the downsizer contributions cap

With the passing of the downsizer superannuation contribution (DSC) legislation in December, Aussies have one more tactic they can use to plan a successful retirement.

Effective from July 1, the cap is designed for people downsizing from their main residence, though it can be used in much wider circumstances. The downsizer cap is in addition to the other caps, and is available regardless of the amount of money the member already has in super.

However, the downsizer cap can only be used once, and the maximum amount that can be contributed under the cap is $300,000 or the actual sale proceeds from the property, whichever is less.

There are a number of other conditions:

  1. The contributor must be aged 65 or older.
  2. The contribution must be all or part of the capital proceeds received from the sale of an ownership interest in a dwelling in Australia. Caravans, houseboats, and other mobile homes do not qualify. 
  3. The contributor or their spouse must have owned the interest prior to disposal.
  4. At least some of the capital gain must have been disregarded under the main residence capital gains tax (CGT) rules.
  5. The contribution must have been made within 90 days after the change of ownership occurred.
  6. The contributor, their spouse, or former spouse must have owned an interest during the decade prior to the sale.

Rather interestingly, there is no requirement to actually downsize or even buy other property. The property sold also need not have been the main residence immediately prior to the sale. It is enough that the property at some stage was used as a main residence. This means that the sale of an investment property that at one stage was a main residence could qualify, allowing some of the proceeds to be added to super under this cap.

Neither does the property have to be owned by the contributor. It could be owned by the spouse or the member for whom the contribution is made. This could allow up to $600,000 to be contributed for a couple under this cap. It also isn’t required that the money goes into super based on the ownership interest in the property that was sold.

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