How to use federal government downsizer scheme to boost superannuation

More older homeowners are taking advantage of the downsizer scheme for over-55s to pump cash from property into super, but there are some potential pitfalls. Here’s what you need to know.

A rising number of older homeowners are downsizing their properties and pumping the profits into superannuation, new figures show.

Analysis by super and investment giant Colonial First State has found its clients’ use of the federal government’s downsizer scheme, where people can inject an extra $300,000 each into super from the sale of their home, increased fivefold between 2023 and 2024.

The numbers were tracking higher this financial year, CFS said, and noted that 2,555 members had used the scheme since eligibility was lowered from age 60 to 55 in 2023.

CFS head of technical services Craig Day said the rise reflected wider eligibility, but warned people downsizing should consider its impact on age pension eligibility, because homes were exempt from Centrelink means testing while super was not after age 67.

More seniors are selling their homes and moving money to super. Picture: iStock

“The surplus sale proceeds that you contribute to super as a downsizer contribution will now be treated as a financial investment and will count towards the age pension income and assets tests,” he said.

“Therefore, while making a downsizer contribution could allow you to top up your super and allow you to draw more retirement income back out of your super fund, it could also result in you receiving less age pension depending on your circumstances.”

The downsizer rules allow each member of a couple to contribute up to $300,000 from the proceeds of selling their home into super, on top of other super contribution caps.

The latest Australian Taxation Office figures show the number of downsizing individuals jumped 47 per cent between 2020 and 2023. Since the scheme was launched in 2018 more than 80,000 people have used it to contribute more than $20 billion into super.

Marinis Financial Group managing director and financial strategist Theo Marinis said his firm used downsizer contributions with clients “quite a bit”.

“It is a good scheme,” he said.

“Australians have most of their money tied up in property and they don’t have enough for super.”

However, the downsizer scheme’s generosity conflicted with separate government moves to clamp down on high super balances through higher taxes, Mr Marinis said.

“The left hand doesn’t know what the right hand is doing,” he said.

“Scott Morrison brought it in to alleviate the housing shortage … that hasn’t worked that well because there’s still a shortage. But it certainly gives us more levers.”

Critics argue inefficient state taxes such as stamp duty remain a big deterrent for empty-nesters that may otherwise downsize their home, contributing to a shortage in houses suitable for families.

Mr Marinis said he expected downsizer contributions to increase as the population aged, as they could help people boost low balances before starting tax-free account based pensions.

Before considering downsizing, people can first use up other annual super contribution caps, of $27,500 in concessional – tax deductible – contributions (rising to $30,000 from July 1) and $110,000 in no-concessional contributions ($120,000 from July 1).

People also can bring forward up to two years of non-concessional contributions, so this means that next financial year, including a downsizer contribution, an individual can potentially pump $690,000 into their super.

A downsizer scheme is more popular with women says Craig Day from Colonial First State.

Mr Day said CFS found downsizer contributions were more popular with women.

“One reason may be that males have a shorter life expectancy, and downsizing could be more popular with women after their partner passes away,” he said.

“Another possible explanation could be addressing the gender super gap, which would see couples choosing to top up the woman’s super rather than the man’s.”

Mr Day said people did not have to be officially downsizing to qualify, and only needed to sell a home to be allowed their $300,000 super contribution, but should remember it could be locked in super until age 67.

“Making a downsizer contribution should be part of a properly-considered retirement plan and should not be something you do prior to reaching age 60 and retiring without thinking through all the issues and pros and cons,” he said.

Originally published as How to use federal government downsizer scheme to boost superannuation