From 1 January 2023 Australian couples aged 55 and over who sell their principal place of residence can jointly add up to $600,000 to their combined superannuation. These contributions can be on top of the Transfer Balance Cap (TBC) limit of $1.9m per person – with the potential to take a well-organized pair to $4.4m in retirement savings.

Now, many people are inclined to think in ‘vanilla’ terms about Mum and Dad selling their big house in the suburbs and buying a smaller, cheaper unit closer to family – and ostensibly this was why the Morrison government introduced the Downsizer contribution on 1 July 2018. Announced as a policy to free up large homes to ease housing affordability, it clearly hasn’t done any harm, but is nowhere near enough in dealing with an even larger problem now.

Although there are those who are more cynical (including this writer) who may have thought it was designed to counter Labor’s proposed anti negative gearing policy in an election year, the Downsizer contribution has proved to be a very sensible way to help people get more funds into super to fund their retirement. This is the purpose of superannuation, after all.

Nevertheless, there are many people who dismiss the downsizer strategy as being ‘not available’ to them.

But if you have a ‘weekender’, holiday house, a ‘shack’ (if you live in Tasmania) or even a hobby farm, a less linear approach to interpreting the legislation can present a tremendous opportunity if you can decide – and declare – which of the two properties is your Principal Place of Residence (PPR).

Take the case of a recently retired couple with a lovely city home and an even more attractive holiday home, with the latter valued less than their city abode. They currently split their time between the two, but recognise that in their 70s, the physical work required to maintain two properties, the driving and the distance from medical and social support will mean that with some regret, the holiday house will need to be sold at some future stage.

This couple have always thought of their city residence as their home, and linear reasoning would suggest they are not eligible to access the Downsizer opportunity.

However, if they declare the holiday house as their principal residence, enrol to vote at that address, have their professional services addresses updated – and maintain this status for just one year, the holiday house becomes their PPR.

When that property is sold, proceeds of up to $300,000 per person can be contributed to their super, provided the contributions are made within 90 days, with concurrent lodgement of correct ATO form.

After one year, to mitigate any Capital Gains Tax liability, they can again complete the PPR nomination process to return their city home to principal residence status. In this case, if their city residence was owned for 20 years, and re-nominated as the PPR after one year, our couple would have a proportionate CGT liability based on the period it was NOT nominated as their PPR ie, 1 year – resulting in only 5% of the capital gain being subject to CGT.

But this is the helicopter view; you will still need to zoom in to check the fine print – AND make sure you get professional advice.

For example:

-        There is a formal notification process which must be correctly followed to nominate a second home as your principal place of residence.

-        To benefit from the Downsizer contribution, it is a requirement to have owned the property for at least 10 years. (For couples, only one member needs to satisfy the ownership requirements to allow both to make a Downsizer contribution).

-        You won’t be able to access the super you contribute as a Downsizer contribution until you meet a condition of release.

-        It will be necessary to consider what, if any Capital Gains Tax liability* applies to either of the properties – hence the importance of getting appropriate financial/taxation/accounting advice.

-        You are only eligible to apply the Downsizer contribution rules once at any age over 55.

-        At say, a 5% pa return on the maximum contribution, however, that’s an additional tax free $30,000 pa for any Downsizer couple!

On the other hand, if the sale of your declared PPR nets more than the maximum $600,000 Downsizer contribution, and your TBC is below $1.9m, you still can make non-concessional superannuation contributions of up to $330,000 each over three years, provided you are younger than 75^ at the time.

And by the way, if you have taken advantage of the Downsizer opportunity to get additional funds into the tax-free superannuation environment, and you have the financial wherewithal, there is currently nothing in the legislation to stop you from buying a bigger home after the process is complete.

*Properties purchased prior to September 1983, are CGT exempt.

^After age 75 your fund can only accept Super Guarantee contributions based on any paid work and of course, downsizer contributions.



The information in these articles is general information only. It is not intended as financial advice and should not be relied upon as such. The information is not, nor is intended to be comprehensive or a substitute for professional advice on specific circumstances. Before making any decision in respect to a financial product, you should seek advice from an appropriately qualified professional on whether the information is appropriate for your particular needs, financial situation and investment objectives.

The information provided is correct at the time of its creation and may not be up to date; please contact Marinis Financial Group for the most up to date information.