When clients sell a long-held family home, the downsizer contribution rules may allow them to contribute part of the sale proceeds to superannuation.

Basic Eligibility Requirements

To be eligible, the seller must satisfy all of the following conditions:

• The individual must be aged 55 or over at the time the contribution is made.
• The eligible dwelling must be located in Australia and have been owned for at least 10 years.
• The disposal of the property must be eligible for the main residence capital gains tax (CGT) exemption, either in full or in part.
• The contribution must be made within 90 days of settlement, and the required election form must be provided to the superannuation fund no later than the time the contribution is received.

Downsizer contributions can only be made once per individual and are capped at the lesser of $300,000 per person or the gross sale proceeds.

Is Full CGT Exemption Required?

A common question is whether the property must be fully exempt from CGT under the main residence rules.

Importantly, a full exemption is not required. A property may still qualify where only part of the capital gain is exempt, provided all other eligibility criteria are satisfied.

Must the Property Be the Main Residence at the Time of Sale?

The property does not need to be the seller’s principal place of residence at the time of sale.

For example, a dwelling that was lived in for a number of years and later rented out may still qualify, provided the ownership and occupancy history supports at least a partial main residence exemption.

Special Considerations for Pre-CGT Properties

For properties acquired before the commencement of CGT, the rules consider whether a capital gain would have been partially disregarded had CGT applied.

A key requirement is the existence of a dwelling that qualifies as a main residence. The sale of vacant land will generally not meet this test and therefore will not satisfy the downsizer contribution requirements.

Eligibility of a Non-Owning Spouse

In many cases, only one spouse is listed on the property title.

A non-owning spouse may still be eligible to make a downsizer contribution, provided all other conditions are met (other than legal ownership).

However, a spouse who never occupied the property and could not reasonably have regarded it as their main residence is unlikely to qualify.

Preservation and Access to Funds

Downsizer contributions are subject to standard superannuation preservation rules. Once contributed, the funds cannot be accessed until:

• Preservation age (generally 60) has been reached and the individual has retired, or
• The individual reaches age 65, regardless of employment status.

Before Making a Contribution

While downsizer contributions may appear straightforward, the rules contain a number of technical nuances. Future cash flow also needs to be carefully considered before making a downsizer contribution. Please contact the team at Bates Cosgrave if you require clarification or advice.