Downsize your home to upsize your super

While sky-high house prices may not be great news for some, if you already own your home, you may be able to use it to give your retirement savings a super boost, just when you need it most.

How much do you need to save for a comfortable retirement? Well, there’s as many answers to that as there are ESSSuper members. But as members approach or move into retirement, we find nearly everyone looks for ways to boost their super savings.

However, the now stricter limits on how much you can contribute to super each year make it difficult to significantly increase your super later in life. With one exception; the homeowner’s downsizer contribution.

The homeowner’s downsizer contribution is an option available to those aged 65 and over, which lets you put money from the sale of your home into super in a tax-effective way that doesn’t affect the other contribution caps.

How does it work?

Middle-aged couple smiling outside on their deck/garden

If you’re aged 65 or over, you can contribute up to $300,000 to your super from selling your main residence. Couples who own the same home can contribute a total of up to $600,000, even if both names aren’t on the title. You can make more than one contribution, but it has to be from the sale of the same main residence, and can’t exceed individual limits¹. You also don’t have to purchase another home after you sell your main residence. Making a contribution to your super fund in this way ensures the money from the sale of your home is retained in the low tax superannuation environment.

Are you eligible?

To be eligible to make this downsizer contribution you must be aged 65 or over when you sell your home, you must make the contribution within 90 days after receiving proceeds from the sale of your home and the property you sell must be your main residence, which you’ve held for at least 10 years prior to the sale².

However, not all funds can accept these type of downsizer contributions. For instance, the ESSSuper Defined Benefit Fund is not eligible, but fortunately an ESSSuper Accumulation Plan can receive downsizer contributions.

Very few other restrictions apply.

The downsizer contribution cap of $300,000 per individual is not restricted by the Non-concessional contribution cap, the Total Super Balance or the need to satisfy the Work Test if you’re fully retired or aged 75 or over³. However, it may impact the Age Pension Asset Test. While your ‘main residence’ is not included as ‘counted assets’ for the purposes of the Age Pension Asset Test, your superannuation balance is counted under the asset and income test. It’s recommended you seek independent financial advice to determine how this may affect your specific situation.

How do you apply?

You need to lodge a downsizer contribution form to ESSSuper within 90 days after receiving the proceeds from the sale of your main residence. The Australian Taxation Office (ATO) is responsible for deciding the eligibility of the downsizer contribution. If the ATO deems that your contribution does not meet the eligibility requirements – ESSSuper will see if your contribution can be accepted as a personal contribution and have it count towards the relevant contribution cap. If it can’t be accepted, the funds will be returned to you. Ultimately, the ATO determines whether your contribution is eligible under the downsizer scheme or not.⁴

Want to know more?

We suggest that you seek independent financial advice before making a decision about downsizing. First, check the ATO website to see if this scheme is the best option for you. You may also want to speak with an ESSSuper Financial Adviser⁵, who understands the complexities of your ESSSuper funds, and is able to advise wider financial issues.

To arrange a face-to-face personal appointment, call our Member Service Centre on 1300 650 161 (Emergency service members) or 1300 655 476 (State super members).

1. Members can make more than one downsizer contribution, however, it can only be from the proceeds of single main residence and cannot exceed $300000 in total.
2. The property is considered to be a main residence if the proceeds (capital gain or loss) from the sale of the home are either exempt or partially exempt from capital gains tax (CGT) under the main residence exemption, or would be entitled to such an exemption if the home was a CGT rather than a pre-CGT (acquired before 20 September 1985) asset. Source: Australian Taxation Office.
3. Work Test: Non-concessional contributions can be made between ages 65-74 if you have worked at least 40 hours in any period of 30 consecutive days during the financial year that the contribution is made.
4. Warning: The ATO may apply ‘false and misleading penalties’ where an individual makes a downsizer contribution that was not eligible and had been incorrectly declared. For more information on false and misleading penalties, please seek advice from the ATO.
5. ESSSuper has an arrangement with Link Advice Pty Ltd (Australian Financial Services Licence (AFSL) No. 258145) (Link Advice) under which Link Advice and its authorised representatives may provide you with fee-for-service (commission free) financial product advice. This means you only pay for the time it takes to provide you with the advice or to complete a financial plan. Under this arrangement, Link Advice authorises certain qualified ESSSuper financial advisers to provide financial product advice to ESSSuper members. Although these financial advisers are employed by ESSSuper, the advice will be provided under Link Advice’s AFSL and Link Advice is responsible for the financial services advice provided to you. ESSSuper pays Link Advice a fee for this service. However, neither the Board, ESSSuper nor the Victorian Government guarantee or endorse any advice given by Link Advice or its authorised representatives.

Downsize your home to upsize your super

While sky-high house prices may not be great news for some, if you already own your home, you may be able to use it to give your retirement savings a super boost, just when you need it most.

How does it work?

Are you eligible?

Very few other restrictions apply.

How do you apply?

Want to know more?

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