Downsizer contribution explained

When the kids have flown the nest, it’s common for pre-retirees and retirees to consider downsizing their home into something more manageable.

It’s also the stage in their life where superannuation becomes front of mind, as you can finally unlock the vault and benefit from further tax savings through an account-based pension.

These two events can work harmoniously together with the use of the downsizer contribution.

What is a downsizer contribution?

The downsizer contribution allows you to contribute money from the sale of your principal residence into super. The special part about this contribution is that it is a non-concessional contribution but doesn’t count towards the contribution cap limit. Also, unlike standard non-concessional contributions, the downsizer contribution is not subject to the usual age and total super balance restrictions.

You can contribute up to a maximum of $300,000 per person (that’s $600,000 for a couple), into superannuation under the downsizer contribution. 

For the 2026/27 financial year, an eligible individual could contribute up to $722,500 into super by combining a $300,000 downsizer contribution, a $390,000 bring-forward non-concessional contribution and up to $32,500 of concessional contributions (subject to eligibility and contribution cap rules). As a couple, this could total up to $1.445 million.

Eligibility requirements

To be eligible to utilise the downsizer contribution, there are a number of eligibility requirements you need to meet. This includes the following:

1. Age: You are aged 55 or older;
   
   
2. Ownership: The home was owned by you or your spouse for 10 years or more before the sale. If the house is only in one person’s name, you can still use the $300,000 limit each;
   
   
3. Capital Gains Tax Exemption: If you have made a capital gain on the property, the proceeds must be exempt or partially exempt from capital gains tax under the main residence exemption. This means the property must have been your main residence for a part of the time it was owned, but not necessarily at the time of sale;
   
   
4. Timing: The contribution must be made within 90 days of sale. That is, 90 days from settlement date. If you need longer because of circumstances outside your control, you can apply to the ATO for an extension of time; and
   
   
5. One-Time Opportunity: You cannot have previously made a downsizer contribution. You only get one opportunity to use the downsizer contribution – even if you contribute less than $300,000, you cannot top it up later.

How to make the contribution

To make a downsizer contribution, you need to provide your super fund with a “Downsizer contribution into super form”. This form is available on the ATO’s website and should be submitted either before or at the time of making the contribution.

You deposit the money into your super fund as you would any other voluntary member contribution. This can often be done via electronic funds transfer (EFT), BPay or cheque.

Factors to consider

Before making a downsizer contribution, you need to consider the following:

• Preservation: Contributions are preserved in your superannuation until you meet a condition of release.  The most common condition is reaching preservation age and retiring from the workforce or attaining age 65. You need to familiarise yourself with the conditions of release before making a contribution.

• Legislative changes: Superannuation is subject to legislative changes. Rules around superannuation may change which could result in adverse outcomes for you.

• Investment strategy and fee structure: Before putting any additional money into superannuation, you want to ensure you understand (and are comfortable with) the investment strategy and fee structure within your super fund.

• Transfer Balance Cap: The downsizer contribution counts towards the transfer balance cap where it is used to commence an account-based pension. The contribution will also increase your Total Superannuation Balance (TSB) at the end of the financial year.

• Age Pension: While your family home is generally exempt from the Age Pension assets test, money contributed to super under the downsizer contribution rules may become assessable under the Age Pension means tests, depending on your age and circumstances.

Th Guided Investor approach

Here at Guided Investor, the downsizer contribution comes into play in Phases 3 and 4 of the Wealth Creation process, when we are setting up clients for retirement.

It is a particularly useful strategy where there are significant assets to transfer into a tax-free account based pension as it allows an additional $300,000 to be contributed on top of the standard cap limits.