The ATO issued the following products on 7 November 2018 to provide guidance on the recently enacted downsizer superannuation contributions measure:
- Law Companion Ruling LCR 2018/9, which focuses on the numerous conditions that must be satisfied for a contribution to qualify as a downsizer contribution. This ruling finalises Draft LCR 2018/D4 and contains the same views as the draft.
- Super Guidance Note SPR GN 2018/2, which contains detailed general information and examples for individuals.
Section 292-102 of the Income Tax Assessment Act 1997 (ITAA 1997) allows individuals aged 65 or over to make a downsizer contribution of up to $300,000 (not indexed) from the proceeds of selling their home. This measure took effect on 1 July 2018 (for contracts of sale entered into from that date).
A downsizer contribution is:
- excluded from the definition of a non-concessional contribution and therefore does not count towards the person's non-concessional contributions cap;
- exempt from the contribution rules for people aged 65 and older;
- exempt from the restrictions on non-concessional contributions for people with total superannuation balances above the general transfer balance cap; and
- not tax deductible.
Ruling LCR 2018/9 notes that although an individual's total superannuation balance will not affect their eligibility to make a downsizer contribution, any downsizer contribution amount will still count towards their total superannuation balance.
The following conditions need to be met for a contribution to qualify as a downsizer contribution:
- The individual must be aged 65 or more when the contribution is made.
- The contribution must be all or part of the capital proceeds from disposing of an ownership interest in a qualifying dwelling in Australia. Ruling LCR 2018/9 confirms that the ownership interest can be an equitable interest or an interest as a joint tenant or tenant in common, and that a person is not prevented from making a downsizer contribution if others hold interests in the same dwelling.
- The capital proceeds must be fully or partially exempt from CGT under the main residence exemption (or, for pre-CGT assets, would have qualified for a full or partial exemption). However, the ATO confirms that it is not relevant how the main residence exemption is calculated or apportioned.
- Just before the disposal, the ownership interest must have been held by the person or their spouse. The ATO says it is not necessary for the dwelling to have been their main residence at the time of disposal.
- A 10-year ownership condition must be met by the person or their spouse (including a former or deceased spouse). The ATO notes this condition is not related to the main residence requirement –the dwelling does not need to have been the person's main residence for a 10-year period, provided an effective partial main residence exemption is available, or would have been available had the person (and not their spouse) held the interest.
- The contribution must be made within 90 days of settlement (or any longer period allowed by the ATO).
- The person must choose to treat the contribution as a downsizer contribution and must notify their super provider of this choice (using the approved form) by the time the contribution is made.
- The person must not have previously made any downsizer contributions from an earlier disposal of a main residence. However, multiple downsizer contributions may be made to one or more funds from the sale of interests in a qualifying dwelling, provided the maximum contribution amount is not exceeded.
The maximum contribution amount must be the lesser of $300,000 or the total capital proceeds that the person, their spouse or both receive from disposing of their ownership interests in the dwelling. The ATO confirms that where an individual uses their spouse's interest in a dwelling to calculate the available maximum contribution amount, the spouse does not need to satisfy the eligibility requirements for making a downsizer contribution. The ATO also notes that a person who uses the capital proceeds to discharge a mortgage can still make a downsizer contribution.