If you sell a family home that you’ve lived in for more than 10 years, you can use part of the proceeds to top up a less-than-healthy super balance (without paying any tax in the process). Nigel Bowen explains how this lucrative bonus worth $300,000 per person or $600,000 for a couple works.

By Nigel Bowen

It’s no secret that Australia’s property market is crazy, which has resulted in suboptimal outcomes for Australians of all ages. 

In 2017, the federal government launched an initiative to benefit both asset-rich but super-balance-challenged homeowners and aspiring homebuyers hoping to start a family. 

Australians of a certain age would be able to sell their residence and transfer a proportion of the proceeds – $300,000 for an individual, $600,000 for a couple – into their super account tax-free. 

Typically, the government takes (at least) a 15% cut of any money going into your super account, but this doesn’t happen with ‘downsizer contributions’.

A government scheme that worked

When the downsizer super contribution was introduced, you had to be 65 or older to be eligible. 

This was first lowered to 60 and, more recently, to a positively youthful 55. 

The scheme got off to a slow start but has now become popular. Over the last 5 years, almost 60,000 Australians have utilised the downsizer contribution, collectively topping up their super balances to the tune of $14.5 billion. (There’s broad consensus that home-owning individuals should aim for a $595,000 super balance and couples for $690,000 if they want to enjoy a decent standard of living in retirement.) 

Of course, downsizing can have all sorts of non-financial benefits as well. Despite skyrocketing interest rates, property prices have, on average, risen throughout 2023. 

So, if you’re anywhere in the vicinity of 55, you may want to consider putting the family home on the market. Especially if the kids have (finally!) moved out.

Isn’t this too good to be true? It might be if you want an age pension

Australian governments face two challenges. First, younger Australians are struggling to get onto the property ladder. Second, less-young Australians are increasingly worried about how they will fund retirements that could stretch for decades. 

Given the downsizer contribution alleviates both those problems, federal governments of both political persuasions have been willing to sacrifice some taxation revenue they would otherwise collect. 

That noted, there is one big catch with downsizing. 

If it’s your principal place of residence, your home isn’t counted as an asset when your eligibility for the age pension is determined. 

You could live in a billion-dollar palace, but as long as you’re an individual with assets – not including your home, but including your super balance – worth less than $301,750, you should qualify for a full pension.

If you’re in a relationship and you and your partner have assets worth less than $667,500, you can still get a part pension.

Those at the top and bottom of the socio-economic ladder, who were either never going to qualify for a pension or exceed the asset limit, don’t need to worry about this too much. 

But if you’re in the Goldilocks zone, you’ll need to work out whether selling your home will make you ineligible for a full or part age pension you might otherwise have received (or are already receiving). 

While we’re on the subject, while the home being sold must have been your principal place of residence for a decade, you can probably still take advantage of the downsizer contribution even if you rented it out on occasion. 

(As with most things housing/super/tax-related, the details soon become complicated. So, consider consulting a financial adviser with the expertise to wargame out how your finances will be impacted if you do sell up.)

Other things to be aware of 

Aside from potentially making yourself ineligible for the age pension, there aren’t many other downsides to the downsizer contribution. But please be aware of the following. 

*There’s a 90-day time limit: If you want to take advantage of the downsizer contribution, you’ll need to do it within 3 months of the sale of your home being settled.

*You can do whatever your want with your money. While you can choose to move from a large suburban home to an inner-city apartment, it’s not compulsory. It’s entirely up to you where you live and what you do with the money you make from selling your old home. You can’t put more than $300,000 into your super ($600,000 for couples) tax free, but you can opt to put a lesser amount in. (If you only want to put, for instance, $30,000 into your super under the downsizer contribution, that’s entirely your choice. And you don’t have to put in anything if you don’t want to.)  

*It’s not just the proceeds of property sales that be put, tax-free, into super. If you, for instance, sell a business or receive an inheritance, you can use your “personal transfer balance cap” to put part of your windfall in super without paying the usual 15% tax. Once again, the rules are convoluted but the main thing you need to understand is that you can’t double dip. That is, you can’t put $300,000 in super via the downsizer contribution and then – anytime soon, at least – deposit another $330,000, tax-free, via the transfer balance cap.

^{Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.}