Selling the family home and moving somewhere smaller can release a substantial amount of money. For some older Australians, the downsizer contribution rules provide an opportunity to place part of those sale proceeds into superannuation.
The scheme has attracted billions of dollars since it began, but recent Tax Office figures indicate that fewer Australians are using it than at its peak.
Does that mean downsizer contributions are no longer worthwhile?
Not necessarily.
In my view, the falling numbers say more about the complexity of downsizing than they do about the usefulness of the scheme. Selling a long-held family home is rarely a purely financial decision. It can involve lifestyle, family, housing availability, tax, Centrelink and retirement-income considerations.
For residents across Geelong and Greater Geelong, a downsizer contribution may still be valuable. The important question is whether it suits your particular circumstances.
What is a downsizer contribution?
The downsizer contribution rules allow an eligible person to contribute some of the proceeds from selling their home into superannuation.
An eligible individual may contribute up to $300,000. That means an eligible couple may potentially contribute up to $600,000 combined, provided each person meets the requirements and sufficient sale proceeds are available.
The contribution is separate from the usual concessional and non-concessional contribution caps. It can therefore provide an opportunity to add a meaningful amount to super even when the ordinary contribution rules would otherwise restrict you.
Under the current rules, you generally need to be at least 55 years old when making the contribution. You must also satisfy requirements relating to ownership of the home, its use as a main residence and the timing of the contribution. In most cases, the contribution must be made within 90 days of settlement, unless the Australian Taxation Office grants an extension. A person can only use the downsizer contribution concession once.
Despite its name, the rules do not necessarily require you to buy a smaller or less expensive home. You may buy another property, move into a retirement village, rent or make a different living arrangement. Eligibility relates primarily to the sale and contribution requirements rather than the physical size of your next home.
Why are fewer people using the scheme?
Downsizer contributions rose strongly after the scheme was introduced. The early demand makes sense.
Many people who were already considering selling their homes were ready to act. They had suitable properties, clear retirement plans and enough sale proceeds to contribute to super after purchasing their next home.
The scheme also gave financially secure retirees another way to move money into the concessionally taxed superannuation environment.
However, a downsizer contribution can only be used once. Once many of those early adopters had sold and contributed, they permanently left the pool of potential future users.
That makes some reduction or plateau in participation unsurprising. It does not necessarily mean Australians have lost faith in the scheme.
Most retirees are not rushing to leave the family home
One of the biggest limitations is simple: a downsizer contribution generally depends on selling an eligible home.
Many retirees have no desire to do that.
The family home may represent decades of memories, proximity to friends, familiarity with the local area and a sense of independence. It may also provide enough space for visiting children, grandchildren, hobbies or a home office.
In Greater Geelong, people may want to stay close to established medical services, shops, community organisations and family networks. Moving to a smaller property can mean giving up far more than an unused bedroom.
There are also significant transaction costs to consider, including:
Agent’s fees
Conveyancing expenses
Removal costs
Repairs or preparation before sale
Owners corporation fees in some developments
Stamp duty on the replacement property
New furniture or modifications
A smaller home does not always come with a dramatically smaller price tag. Once these costs are included, the amount released may be less than expected.
Finding the right replacement home can be difficult
Downsizing works best when suitable housing is available.
Many retirees are looking for a property that is:
Single-level or easily accessible
Low maintenance
Close to shops and medical services
Near family and friends
Secure and comfortable
Large enough to remain practical
Located within a familiar community
That can be a difficult combination to find.
A newly built townhouse or apartment may cost almost as much as the larger home being sold. Some developments may also involve owners corporation charges, limited outdoor space, stairs or layouts that are not ideal for ageing residents.
The decision is therefore not simply, “Can I sell my home?” It is also, “Can I find somewhere suitable to live afterwards?”
Without a realistic replacement option, the superannuation benefits alone are unlikely to justify moving.
The Age Pension can change the calculation
The interaction between downsizing and the Age Pension is one of the most important issues to understand.
A person’s principal home is generally excluded from the Centrelink assets test. Superannuation held by someone over Age Pension age, however, is generally assessable.
This means that selling an exempt family home and placing surplus proceeds into super can increase the value of assessable assets.
Depending on your circumstances, that may reduce your Age Pension or cause you to lose eligibility altogether. Financial assets may also be subject to Centrelink’s deeming rules when your income-test position is calculated.
That does not automatically make a downsizer contribution a poor decision. Having greater personal savings may leave you financially better off overall, even if your pension falls.
However, the potential reduction in Age Pension needs to be calculated before you make the move—not discovered after the money has already gone into super.
It is also worth remembering that selling your home does not mean every dollar is immediately assessed. The portion of sale proceeds genuinely intended for purchasing, building, repairing or renovating a new principal home may receive a temporary assets-test exemption. For homes sold from 1 January 2023, this exemption may apply for up to 24 months, with a possible extension in some circumstances.
The exact treatment depends on what you intend to do with the money and how long the transition takes.
Putting money into super can offer advantages
Despite these complications, downsizer contributions can still be useful.
Depending on your age, account structure and personal tax position, moving money into super may help you:
Increase your retirement savings
Generate tax-effective retirement income
Consolidate investments
Reduce the amount held in taxable personal investments
Establish or add to an account-based pension
Improve the long-term management of your retirement capital
For couples, the rules may also provide an opportunity to balance superannuation between partners.
For example, one partner may have accumulated significantly more super than the other. Subject to eligibility and contribution limits, the sale of the home may allow both partners to make separate downsizer contributions and create a more balanced retirement position.
There may also be estate-planning consequences, as superannuation does not automatically form part of your estate. Beneficiary nominations, potential death-benefit tax and the identity of your intended beneficiaries should be reviewed before making a substantial contribution.
You need to keep enough money outside super
Another consideration is access to capital.
A downsizer contribution goes into the superannuation system. Whether you can immediately withdraw that money depends on whether you have met an applicable condition of release.
Many people aged 55 and over will still be working and may not yet have unrestricted access to their super.
Even when you can access it, putting all available surplus cash into super may not be sensible. You may need money outside super for:
Moving and furnishing costs
Home modifications
Medical or dental expenses
Vehicle replacement
Holidays
Family assistance
Emergency savings
Aged care or future accommodation costs
A good strategy normally considers both tax efficiency and practical access to money.
Downsizing should begin with the lifestyle decision
The strongest downsizing plans usually begin with a lifestyle question rather than a superannuation question.
Ask yourself:
Does the current home still suit us?
Is the maintenance becoming difficult?
Do we want to remain in the same area?
What type of property would work for the next 10 or 20 years?
How close do we want to be to family and essential services?
What will the move genuinely cost?
How much money will remain after buying the next home?
Only after answering those questions should you decide what to do with any surplus proceeds.
The downsizer contribution rules are a financial tool. They should support your housing and retirement plans, not dictate them.
Getting advice before you sell
Downsizing can affect several areas of your finances at once, including:
Superannuation
Retirement income
Age Pension eligibility
Cash flow
Investment strategy
Tax
Estate planning
Future aged-care options
Once a property has been sold and money has been contributed, some decisions may be difficult or impossible to reverse.
As a Financial Adviser in Geelong, I help clients across Greater Geelong compare the likely outcomes before they proceed. This may include estimating the amount released from the sale, modelling possible Age Pension changes and determining how much should be contributed to super, invested elsewhere or retained in cash.
Downsizer contributions may be attracting fewer people than they did several years ago, but that does not mean the scheme has lost its value.
It simply reflects the reality that downsizing is a major personal and financial decision. For the right person, at the right time, a downsizer contribution can still form an effective part of a broader retirement strategy.
The key is to assess the entire position—not just the potential tax benefits of putting more money into super.