Can you make a Downsizer contribution when buying a bigger home?
Yes, you can make a downsizer contribution into your SMSF when buying a bigger home.
You may use a downsizer contribution to help fund your retirement, even if you decide to buy a larger home. The “Downsizer Contribution” is not about downsizing (despite the name) but allowing older homeowners to sell their long-held property and make a sizeable deposit into their superannuation fund.
What is a Downsizer Contribution?
An amount up to $300,000 can be contributed to your SMSF from the proceeds received after selling your main residence. A contribution can be made by each spouse. Thus, a couple can make a total maximum contribution of $600,000.
Do Downsizer Contributions count towards contribution caps?
A downsizer contribution is neither a concessional or a non-concessional contribution and does not count towards the non-concessional cap which is $120,000 in 2025/26 financial year. An older couple selling their residence could potentially contribute $1.32mil to their SMSF. However, this would mean they are both eligible to use the bring forward rule as well as make the maximum downsizer contribution.
The downsizer contribution is not taxed when it is contributed to your SMSF and remains tax free when it is withdrawn from the fund which includes being withdrawn by your adult children on your death.
What are the eligibility rules?
- an SMSF member must be aged 55 or older
- the home must have been the member’s main residence
- the member must have owned the residence for at least 10 years
- your home is in Australia and was a permanent place of residence and cannot be a caravan, houseboat or mobile home
- the contribution must be made within 90 days from the date of settlement, but an extension may be requested from the ATO for special circumstances
- a request to your SMSF to make the contribution must be formally applied for – you can use an ATO downsizer contribution into super form which can be downloaded for this purpose and it must be given to the SMSF trustee before the contribution is made
- a downsizer contribution can only be made in relation to one dwelling
Other considerations
- the downsizer contribution forms part of your total superannuation balance which can affect the eligibility requirements in relation to unused concessional contributions carried forward, non-concessional contributions cap and using the segregated asset method for exempt current pension income
- whilst the downsizer contribution does not count towards the contribution caps it is not exempt from being counted toward the transfer balance cap (i.e. maximum amount an individual can have in pension mode)
- consider how the additional contributions impact the proposed new legislation in relation to Div296 known as the $3mil super tax
Frequently asked questions
- What if my husband is the only title holder but we have lived in our main residence for 20 years?
Both you and your husband are each entitled to make a maximum $300,000 contribution to your super fund.
- Must the cash come from the proceeds of selling my main residence?
It can come from a different source such as a term deposit, an inheritance or be satisfied by a combination of an in-specie contribution of listed shares and cash. The proceeds from the sale of your residence cannot exceed the downsizer contribution made to your SMSF.
- How is the 10-year ownership period calculated?
The ownership period of 10 years is calculated before the sale – starting from the date of settlement for the purchase of the property to the date of settlement for the sale of the property.
- Do I have to be living in my home at the time of sale?
Not necessarily. Provided you meet all other requirements you are still eligible if either you or your spouse owned it at the time of sale and it was classified as your main residence for the purposes of the capital gains tax definitions. You can extend your main residence exemption up to six years if you rent it out provided it was eligible as your main residence prior to that and you do not nominate another property during that time as your main residence. An indefinite exemption is available if you do not live in your main residence and do not rent it out and do not nominate another property as your main residence.
- My husband and I have lived in our house on 6 hectares for 15 years and have no other main residence and are both over 55 – can we make a downsizer contribution?
Yes, you can. Even though for CGT purposes a capital gain is apportioned as only 2 hectares form part of the main residence exemption for downsizer contributions the proceeds are not apportioned, and the maximum contribution can be made subject to the proceeds received and meeting all other criteria.