Downsizer contribution to super when selling an investment property?

Many people when selling an investment property might consider concessional contributions to super to reduce potential capital gains tax. The limits for these contributions aren’t too generous, however what if you have considerable left over funds? Well, provided you haven’t used a “downsizer contribution” previously – you may be able to take advantage of these rules.

The “downsizer contribution” was first made available in 2018. The main purpose was to allow Australian’s 65 years and older (which the age is now 55 years plus) to sell your principal residence that you have lived in for at least 10 years and contribute any surplus up to $300,000 (singles) or $300,000 each (couples) into superannuation.

The idea is to encourage people to sell their “big” family home, move to something smaller and free up capital to help support their retirement. Even though it is designed in principle for this reason - you might have had a home you lived in from 2010 – 2020 and then it has since become an investment property. When you sell this investment property, provided you meet all the other criteria and haven’t previously used the downsizer contribution, you can still use the downsizer contribution rules even though it isn’t your current principal residence.

This is because, one of the criteria says that “The proceeds (capital gain or loss) from the sale of the home are either exempt or partially exempt from capital gains tax (CGT) under the main residence exemption”. Meaning the property you lived in from 2010 – 2020 and then rented as an investment property IS “partially exempt” from CGT.

When I meet clients in this situation, they aren’t always aware of what is available to them and what the current legislation is, but this is one example of an alternative way to use the “downsizer contribution” rules. Everyone is different in what they are trying to achieve and you have to remember also, if you do use it once, you can’t use it again in the future.