Downsizing to boost your retirement

Together with Super, your home is one the most tax effective investments you can make. While the property market has softened somewhat as interest rates have risen, if you have been lucky enough to own your own home over the past 20-30 years, it has likely been a significant driver of your wealth creation. 

However, the home that suited your now grown-up family so well may not suit you in retirement. It could be larger than your needs and require significant maintenance. Or maybe it’s simply tying up capital that could otherwise be invested to improve your retirement lifestyle.  

So, looking past the emotional ties and downsizing could see you move into a more practical home and improve your financial security. 

Fortunately, the Government wants retirees to downsize to free up larger homes for younger people and has offered tax concessions via super contributions to incentivise retirees to do so. 

Downsizer super contributions 

In 2018, the Government introduced downsizer super contributions to allow older Australians to sell their home and use the proceeds to purchase a smaller one and contribute up to $300,000 ($600,000 for a couple) of the balance into their super account. 

Initially the minimum age was 65. However, from 1 January this year people aged 55 and over can access downsizer contributions. 

There is no upper age limit. Ordinarily, once you turn 75 you can no longer make personal contributions. So, downsizing even late in life can present a rare opportunity to top up your super.  

Other things to know about downsizer contributions, include: 

  • You must have owned your home for at least 10 years 
  • The contributions are not tax deductible, however, there is no contributions tax 
  • Your concessional ($27,500) and non-concessional ($110,000) contribution limits are unaffected 
  • If owned solely by one partner, the other partner may still be entitled to make the contribution 
  • Buying a replacement home is not a requirement, provided you satisfy the other criteria 
  • You must make your contribution into your super account within 90 days of settling your property sale 
  • When making the contribution make sure you use the special downsizer contribution form 
  • You can only use the downsizer concession once 

So, for example, if you are between 55 and 75 years of age and have a super balance of less than $1.68m the previous financial year, you and your partner could contribute up to $657,500 each following the sale of your home: 

  • Downsizer contributions: $300,000 
  • Concessional contributions: $27,500 
  • Non-concessional contributions: $330,000*  

*Using 3 year bring-forward rule 

Why do it? 

The main benefit of making super contributions is reducing the tax you pay on your investments.  

While in accumulation phase, your super earnings are subject to only 15% income tax and 10% CGT (for investments held >1 year. Once you retire (reach preservation age) and convert your super to pension mode, your super balance up to a lifetime cap of $1.9m is tax free. This means that if you are a 60-year-old female retiree, your super may be invested for over 25 years tax free!  

Downsizing is not for everyone 

Before making the decision to downsize, you should carefully consider the impact it may have on your Aged Pension or any other Centrelink entitlements. For instance, your home is not counted in the Aged Pension asset test. However, your super balance is.  

Also, there are significant costs to selling and buying property and a smaller property may not always be cheaper than your current home. You should carefully consider these factors before making the decision to downsize.   

If you are thinking about downsizing, call one of our experienced advisers on (02) 6686 6678 to help you develop a plan according to your particular circumstances. 


Disclaimer: The information and articles in this newsletter are of a general nature only and should be taken as personal advice as they might be unsuited to your specific circumstances. The contents do not take into account the investment objectives, financial situation or particular needs of any person and should not be used as the basis for making any financial or other decisions. You should consult your financial adviser or other professional advisers prior to acting on this information.