Explanatory Memorandum(Circulated by authority of the Treasurer, the Hon Scott Morrison MP)
Chapter 2 - Contributing the proceeds of downsizing to superannuation
Outline of chapter
2.1 Schedule 2 to the Bill allows an individual to use the proceeds in relation to one sale of their main residence to make contributions (downsizer contributions) of up to $300,000 to their superannuation provider if they are 65 years of age or over. Downsizer contributions can be made regardless of the other contributions caps and restrictions that might apply to making voluntary contributions.
2.2 This measure applies to proceeds from contracts for the sale of a main residence entered into (exchanged) on or after 1 July 2018.
2.3 All references in this Chapter are to the Income Tax Assessment Act 1997 unless stated otherwise.
Context of amendments
2.4 The measure to allow the contributions of downsizing into superannuation measure is one of several measures announced in the 2017-18 Budget as part of the Government's package of reforms to reduce pressure on housing affordability.
2.5 There are current contribution restrictions and caps that prevent some older Australians from making downsizer contributions into superannuation. Being unable to invest the proceeds of selling their home into superannuation discourages some older people from downsizing homes that no longer meet their needs. This means many larger family homes sit occupied by only singles or couples.
2.6 This measure will provide greater flexibility to contribute those proceeds into superannuation. Downsizing enables more effective use of the housing stock by freeing up larger homes for younger, growing families.
Operation of existing law
Making contributions into superannuation
2.7 There are two categories of superannuation contributions for taxation purposes: concessional and non-concessional. Concessional contributions generally include all employer contributions (including salary sacrificed amounts) and all personal contributions for which a deduction is claimed.
2.8 Non-concessional contributions are essentially contributions that are made from after-tax income and are subject to a maximum limit (cap) each year.
2.9 The annual non-concessional contributions cap for the 2017-18 financial year is $100,000. However, if an individual's total superannuation balance at the end of the previous year equals or exceeds the general transfer balance cap, their non-concessional contributions cap for the year is nil (paragraph 292-85(2)(b)). For 2017-18, the general transfer balance cap is $1.6 million.
2.10 The Commissioner of Taxation (Commissioner) must make a determination if an individual's non-concessional contributions exceed their cap. The individual has the choice of releasing the excess amount plus 85 per cent of associated earnings. If the individual chooses not to release the amount, they are subject to excess non-concessional contributions tax which is charged at the top marginal tax rate plus the medicare levy. Where the individual releases the money the associated earnings are included in their assessable income and taxed at their marginal tax rate.
2.11 Some contributions are excluded from being a non-concessional contribution, meaning that they do not count towards an individual's non-concessional contributions cap. Two of the main exclusions are contributions arising from structured settlements or orders for personal injuries (section 292-95) and contributions relating to some CGT small business concessions (section 292-100). If a contribution is not covered by an exclusion, the contribution is a non-concessional contribution and counts towards the individual's non-concessional contributions cap.
Rules about accepting contributions made into superannuation
2.12 The Superannuation Industry (Supervision) Regulations 1994 (SISR 1994) and Retirement Savings Accounts Regulations 1997 (RSAR 1997) set out certain rules about when a superannuation provider is allowed to (but is not required to) accept certain contributions. For these purposes a contribution is either an employer contribution or a member contribution (a contribution made by or on behalf of a member).
2.13 Generally a member contribution will be a non-concessional contribution unless the individual has claimed a deduction in respect of it or it is excluded from being a non-concessional contribution (paragraph 292-90(2)(c)).
2.14 Whether a superannuation provider can accept a contribution depends on the type of contribution, the member's age and their working status. These acceptance rules are contained in subregulation 7.04(1) of the SISR 1994 and subregulation 5.03(1) of the RSAR 1997.
2.15 Superannuation providers can accept employer contributions and member contributions in respect of a member who is 65 years or older, but under 70 years of age. For a fund to accept a member contribution in respect of such members, the member must satisfy a work test.
2.16 Superannuation providers can accept employer contributions in respect of a member, and member contributions made by the member for members who are 70 years or older but who are under 75 years of age. For a fund to accept a member contribution made by such members, the member must satisfy a work test. Requiring member contributions to have been made by the member means that contributions made by an entity that is not an employer (such as a spouse) cannot be accepted by a superannuation provider for a person who has reached age 70.
2.17 Superannuation providers can only accept mandated employer contributions for members aged 75 and over. This means that contributions made by a member who is aged 75 or over cannot be accepted by a superannuation provider.
2.18 If the superannuation provider receives a contribution that is inconsistent with the acceptance requirements, it must return the contribution within 30 days of becoming aware of the inconsistency. The provider may also return an amount that reflects investment outcomes (for example, gains or losses that the provider made after the contribution was accepted) and that is net of administrative costs (subregulation 7.04(4) of the SISR 1994 and subregulation 5.03(4) of the RSAR 1997).
Dwelling that is your main residence
2.19 For capital gains tax (CGT) purposes, broadly, a capital gain or loss made on a dwelling that is an individual's main residence is disregarded (subsection 118-110(1)). 'Main residence' is not defined and takes its ordinary meaning. 'Dwelling' is defined and includes, broadly, a unit or house, the land directly under it (if a house), and also a caravan, houseboat or other mobile home (section 118-115). The main residence exemption will also apply to adjacent land such as a garden, up to 2 hectares (section 118-120). The rules apply to individuals with an ownership interest, meaning a legal or equitable interest or right or licence to occupy a dwelling (section 118-130).
2.20 If a dwelling was only the main residence for part of an individual's ownership period, the capital gain or loss is only disregarded for the period it was their main residence (section 118-185).
2.21 Individuals can continue to treat a dwelling as their main residence if they are absent from their dwelling for periods of time (for example, to travel, work or move into a retirement village). If the dwelling is used for income producing purposes, this absence is limited to six years. If not, there is no time limit on the absence (section 118-145).
2.22 Section 118-195 deals with the CGT treatment of dwellings acquired from a deceased estate. An individual who inherits a dwelling and uses that dwelling as their main residence, or sells the dwelling within two years, qualifies for the full main residence exemption if the deceased acquired the dwelling:
- before 20 September 1985; or
- on or after 20 September 1985, and immediately before their death it was their main residence and not used to produce assessable income.
2.23 If an individual inherits a dwelling that does not become their main residence and does not sell it within two years, a partial exemption is available (section 118-200). There are also special rules for a surviving joint tenant if their spouse dies (section 118-197).
2.24 Subdivision 118-B and other sections of Part 3-1 provide modifications to the basic main residence exemption including, amongst others, specific rules for relationship breakdown, when an individual can elect to treat a dwelling as a main residence and partial exemptions if the dwelling has been used to produce assessable income.
2.25 A CGT event for the disposal of an asset (including a main residence) generally occurs when the contract for the disposal is entered into (subsection 104-10(3)). However, the change of ownership generally occurs upon settlement of a contract.
Summary of new law
2.26 The amendments in this Schedule allow 'downsizer contributions' to be made in respect of a person who is aged 65 or over from the proceeds of the sale of a dwelling that was their main residence.
2.27 The amendments apply to the proceeds from contracts entered into on or after 1 July 2018. Downsizer contributions are not tax deductible and can be made for an individual in relation to one sale of a main residence. Further downsizer contributions cannot be made in the future in relation the sale of another main residence.
2.28 The total amount of contributions that can be treated as downsizer contributions in respect of an individual is the lesser of $300,000 and the individual's share of the sale proceeds. The cap on downsizer contributions is explained further below.
2.29 In line with the treatment for other kinds of contributions, if an amount is contributed to superannuation that does not meet the requirements of a downsizer contribution, the contributions will be counted against the relevant contribution cap unless the superannuation provider refunds the amount to the payer.
Related changes to the contribution acceptance rules
2.30 In conjunction with amendments contained in this Schedule, changes to the contribution acceptance rules in the SISR 1994 and RSAR 1997 are required. These changes will allow downsizer contributions to be made in respect of individuals where they would otherwise not be able to be made because the individual does not satisfy the existing age and work tests.
2.31 However, as the changes to the contribution acceptance rules require amendments to regulations, they are being progressed separately to the amendments in this Schedule.
2.32 The details of these changes will be covered by the explanatory statement that accompanies the amending regulations.
Comparison of key features of new law and current law
|New law||Current law|
|If you are aged 65 or over, you may make downsizer contributions from the proceeds of the sale of your main residence.
Downsizer contributions are not counted against your contributions caps.
Your downsizer contributions must relate to the sale of a dwelling that was your main residence and which was owned by you or your spouse for at least 10 years up to the disposal.
Your total downsizer contributions cannot exceed $300,000.
Downsizer contributions are not deductible and you can only make downsizer contributions in relation to the sale of your main residence once.
|If you are aged 65 or over, any contributions that you make in relation to the proceeds of the sale of your main residence are subject to your contributions caps.|
Detailed explanation of new law
Downsizer contributions do not count towards the contribution caps
2.33 A downsizer contribution is excluded from being a non-concessional contribution. [Schedule 2, item 3, subparagraph 292-90(2)(c)(iiia)]
2.34 The criteria for a contribution being a downsizer contribution are explained below.
2.35 Because a downsizer contribution is not a non-concessional contribution, it does not count towards an individual's non-concessional contributions cap. Given this, an individual's ability to make a downsizer contribution is unaffected by the total superannuation balance test, which is relevant in determining an individual's non-concessional contributions cap. However, if a downsizer contribution is made, it will increase an individual's total superannuation balance for the purposes of that test.
2.36 Individuals cannot claim a deduction for any contributions that they choose to treat as a downsizer contribution. [Schedule 2, item 2, section 290-167]
2.37 This restriction on deductions ensures that downsizer contributions are appropriately dealt with through the non-concessional contribution framework. However, the restriction does not apply to any other contributions that an individual can otherwise make in respect of the proceeds of selling their main residence.
Example 2.1 - downsizer contributions made with other contributions
Elizabeth is 67 years old and works part-time. She sells her home for $500,000 and decides to contribute $400,000 to superannuation. She decides to:
Features of a downsizer contribution
2.38 For a contribution to be a downsizer contribution in respect of an individual, the following conditions must be satisfied:
- The individual must be aged 65 years or older at the time the contribution is made;
- The contribution must be in respect of the proceeds of the sale of a qualifying dwelling in Australia;
- The 10-year ownership condition is met (see below);
- Any gain or loss on the disposal of the dwelling must have qualified (or would have qualified) for the main residence CGT exemption in whole or part;
- The contribution must be made within 90 days of the disposal of the dwelling, or such longer time as allowed by the Commissioner;
- The individual must choose to treat the contribution as a downsizer contribution, and notify their superannuation provider in the approved form of this choice at the time the contribution is made; and
- The individual cannot have had downsizer contributions in relation to an earlier disposal of a main residence.
[Schedule 2, item 4, subsections 292-102(1) and (2)]
2.39 Downsizer contributions in respect of an individual can only be made from the sale of one dwelling, and the maximum amount of contributions that an individual can have in respect of that sale is the lesser of $300,000 and the proceeds of the disposal of the dwelling. [Schedule 2, item 4, paragraph 292-102(1)(i) and subsection 292-102(3)]
2.40 To qualify as a downsizer contribution, the member contribution must be made in respect of the individual who is otherwise eligible. There are no specific requirements about who must actually make the contribution for that individual, although the individual must be the one who makes the choice to treat a contribution as a downsizer contribution. [Schedule 2, item 4, paragraphs 292-102(1)(a) and (h)]
Proceeds from qualifying dwellings
2.41 The proceeds from the sale of an ownership interest in a dwelling that is located in Australia (section 960-505) can be used to make a downsizer contribution, provided that the dwelling is not a houseboat, caravan or other mobile home. [Schedule 2, item 4, paragraph 292-102(1)(b) and (f)]
2.42 For the purposes of the downsizer contribution rules, the definitions of 'ownership interest' and 'dwelling' that are contained in sections 118-115 and 118-130 apply.
2.43 However, as this definition includes houseboats, caravans and other mobile homes, those types of dwellings are specifically excluded.
2.44 Because the contributions must relate to the proceeds of the disposal of an ownership interest, the amount of the contribution cannot be more than the proceeds that were received from the disposal, up to a limit of $300,000 (these limits are explained separately below). [Schedule 2, item 4, subsection 292-102(3)]
2.45 In addition, downsizer contributions can be made in respect of an individual if they or their spouse held an ownership interest in the dwelling, whether that ownership interest was held solely, jointly or as tenants in common. [Schedule 2, item 4, paragraphs 292-102(1)(c) and (i)]
2.46 The proceeds may in some cases relate to proceeds from the sale of a business where the owner also lives on site and is the owner's main residence. There is no need for the proceeds of the sale to be apportioned so that only the capital proceeds relating to the sale of the owner's main residence are able to be used to make a downsizer contribution. [Schedule 2, item 4, paragraph 292-102(1)(b)]
Example 2.2 - sale of a farm Justin owns an income producing farm with a total of 200 hectares of land which he has owned for 15 years. Only Justin's name is on the title.Justin and his wife, Caitlyn have lived in the residence on the farm for the past 15 years. Justin sells the farm including the main residence for $3 million dollars. Under the existing CGT rules in Subdivision 118-B, Justin is entitled to disregard the capital gain on the main residence and the adjacent land, up to 2 hectares, which is not used to produce income.As Justin qualifies for a partial main residence exemption on the sale of the property, and his wife Caitlyn would have qualified had her name been on the title deed, they are entitled to make a downsizer contribution of up to $300,000 each into their superannuation as this is less than the sale price of the property.There is no need to apportion the sale price of the property based on which part of the property was eligible for the main residence exemption and which part was not for the purposes of working out the maximum amount Justin and Caitlyn can contribute to their superannuation accounts.
The 10 year ownership condition
2.47 To make a downsizer contribution, an individual or their spouse must have owned the dwelling for 10 or more years just prior to disposing of it, However, this rule is modified to take account of events for which Subdivision 118-B provides special treatment, which recognises that there may not be a dwelling at all times on land that is owned, and that individuals may be subject to their dwelling and land being compulsorily acquired (see further below). [Schedule 2, item 4, paragraph 292-102(1)(c) and subsection 292-102(2)]
2.48 The period of the 10 year ownership condition is calculated from the day ownership of the dwelling commenced to the day it ceased. This ownership period would usually be from the settlement date of the original contract to purchase the dwelling to the settlement date of the later contract. [Schedule 2, item 4, paragraph 292-102(2)(a)]
2.49 As a general rule, individuals must have disposed of their ownership interest in a dwelling in order to make a downsizer contribution. The only exception to this is where only one spouse holds an ownership interest in the dwelling but the other spouse does not. In these circumstances it is sufficient that one spouse held the ownership interest, as long as the spouse who does not hold an ownership interest continues to meet the other requirements for the contribution to be a downsizer contribution. [Schedule 2, item 4, paragraph 292-102(1)(c)]
2.50 If there is a period when land is vacant due to a dwelling having been lost or destroyed or knocked down and a dwelling has been rebuilt or is underway, this vacancy does not stop the 10 year ownership condition from being met. Also, a vacant block which someone has bought and then built a dwelling on and lived in as their main residence may meet the 10 year ownership condition. [Schedule 2, item 4, subparagraph 292-102(2)(a)(ii)]
Example 2.3 - 10 year ownership condition - knock-down, rebuild Anh bought a block with a derelict house on it in 2015. In 2016 Anh knocked down the house. In 2017 she gained development approval to build a new house on the block. In 2018 the new house was completed and she moved in.In 2025, Anh wishes to sell the house and make a downsizer contribution from the proceeds. She satisfies the 10 year ownership test even though there were periods within those 10 years when there was no dwelling on the block.
10 year ownership condition and compulsory acquisitions
2.51 If there is a substitute property bought because of a compulsory acquisition, the 10 year ownership condition requires that the ownership interest in the compulsorily acquired dwelling was acquired at least 10 years before the disposal of the substitute dwelling. [Schedule 2, item 4, subsection 292-102(2)]
2.52 It also requires that all the conditions in subsection 118-147(1) are met, subject to the policy for downsizer contributions that they may in certain circumstances be made if the old interest was held by an individual or their spouse or a former spouse, and that downsizer contributions can be made from the sale of a pre-CGT main residence. [Schedule 2, item 4, paragraph 292-102(2)(b)]
2.53 In accordance with the rule in paragraph 118-147(1)(d) the substitute property must be acquired no later than one year after the end of the income year in which the property was compulsorily acquired, or longer time as allowed by the Commissioner in special circumstances. [Schedule 2, item 4, paragraph 292-102(2)(b)]
Example 2.4 - 10 year ownership condition - compulsory acquisition Julian is aged 80 years. He bought a house in 2010. His house was compulsorily acquired in February 2016.He buys a substitute dwelling in February 2017, and lives in it as his main residence. This is within the timeframe allowed for purchasing a substitute dwelling for the purposes of section 118-147(1)(d) because it is less than 12 months after the end of the income year in which the compulsory acquisition occurred.Julian wishes to sell the substitute dwelling to make a downsizer contribution in 2021. He can do so because he acquired the house that was compulsorily acquired more than 10 years prior to the date of disposing of the substitute dwelling.Even though he only owned the substitute dwelling for 3 years, he is still able to make a downsizer contribution from the proceeds because he acquired the compulsorily acquired dwelling 10 or more years before the disposal of the replacement interest.Julian satisfies the main residence exemption because at the time of selling the substitute dwelling it is his main residence.
2.54 In certain cases, there may have been a change in ownership between two spouses over the 10 year period that preceded the sale of dwelling, for example relationship breakdown or death of a spouse. Provided that either of the spouses held an ownership interest in the dwelling at all times during the period, downsizer contributions can be made in respect of the person who held the ownership interest just before disposal and in respect of another person who is their spouse at that time. [Schedule 2, item 4, subsection 292-102(2)]
2.55 For a case where a spouse who held an ownership interest dies, the surviving spouse can count the period of ownership of their deceased spouse (including the period the dwelling is held by the trustee of the deceased estate) towards the 10 year ownership test. The additional qualification about the period over which the dwelling was held by a trustee will generally only be relevant where it is the trustee that disposed of the ownership interest. Where ownership transfers to the surviving spouse, subsections 128-15(1) and (2) provide that if a CGT asset passes to beneficiary of a deceased estate, the beneficiary is taken to have acquired the asset on the day the former owner died.
Example 2.5 - transfer ownership interest between spouses In 2015, Andrew and Tara are both 70 years old.They have been married for 50 years, and have lived in their family home for the past 40 years. The title for their home is solely in Andrew's name.Andrew passes away in mid-2015. He leaves the family home to Tara. On 1 December 2016 the title for the home formally passes to Tara, however due to the operation of subsection 128-15(2), Tara is taken to have acquired the asset on the day Andrew died.After a few years, Tara decides to sell the home so that she can move into a retirement village. The contract for the sale of the home settles on 1 December 2019.Tara satisfies the 10 year ownership test for the purposes of the downsizer rules because at all times over the period starting on 1 December 2009 and 1 December 2019, the ownership interest in the home was held by Andrew (for the first 5 and a half years) or Tara (for the last 4 and a half years).
2.56 Similarly, as stated above, an individual may gain title in respect of a dwelling following the breakdown of a relationship. In such cases, they can count the period of ownership of their former spouse towards the 10 year ownership test. [Schedule 2, item 4, subsection 292-102(2)]
2.57 Where the proceeds that are being contributed are from the disposal of an ownership interest that the individual held in a dwelling, any capital gain or loss resulting from the disposal must have been exempt or partially exempt from CGT under the main residence exemption in Subdivision 118-B. [Schedule 2, item 4, subparagraph 292-102(1)(d)(i)]
2.58 Requiring the main residence CGT exemption to apply ensures that downsizer contributions are to be made in circumstances where individuals are downsizing their home, rather than an investment property they have never lived in.
2.59 It is recognised that over the period that an individual owns a dwelling, they may not always reside in that dwelling for certain reasons. For example, the residence status at a particular time may be affected by things like travel, moving house for unavoidable reasons (like a compulsory acquisition, or relationship breakdown), or use of a dwelling to also earn assessable income.
2.60 These kinds of individual circumstances do not prevent an individual from making a downsizer contribution if the individual meets all the other criteria. The meaning of 'main residence' for CGT purposes provides an exemption or partial exemption from CGT for circumstances of this kind (Subdivision 118-B).
2.61 The requirement that an individual received (or would have received) some part of the main residence CGT exemption for the capital gain or loss they made from selling their dwelling is the basis for assessing whether a dwelling was the individual's 'main residence' for the purposes of making a downsizer contribution.
2.62 A downsizer contribution can also be made from the sale of a dwelling that is not a CGT asset because it was acquired prior to 20 September 1985. For a sale of a pre-CGT asset, the individual can only have a downsizer contribution if they would have been entitled to a whole or partial CGT exemption under Subdivision 118-B if the dwelling had been a CGT asset. [Schedule 2, item 4, subparagraph 292-102(1)(d)(i)].
Example 2.6 - sale of pre-CGT asset On 1 July 2020, Jimi decides to sell his home. He has lived in this home at all times since he purchased it in 1975.Jimi does not have to pay CGT on the gains he makes from the disposal because he acquired his home before 20 September 1985.However, had Jimi's home not been a pre-CGT asset, all of the gains he made on the sale of the home would have been exempt because of the main residence CGT exemption.As such, Jimi satisfies the main residence requirement for making a downsizer contribution in relation to the proceeds of the sale of his home.
2.63 Similarly, if an individual's spouse was the sole holder of the ownership interest that was disposed of, downsizer contributions can only be made in respect of the individual from the proceeds of the disposal if they would have received a whole or partial CGT exemption under Subdivision 118-B had they owned the interest when it was disposed of. [Schedule 2, item 4, subparagraph 292-102(1)(d)(ii)]
Example 2.7 - contribution for spouse that did not hold an ownership interest Amy has owned the dwelling that is her main residence since 2005. In 2015, her new spouse Laze moves in with her. Laze lives in the dwelling as his main residence from 2015, and he would therefore qualify for a CGT exemption on the sale of the dwelling if he was on the title.Amy turns 65 in 2019 and decides to sell the dwelling. Laze is also 65 at that time.The capital proceeds are $500,000. Amy chooses to make a downsizer contribution in respect of herself of $300,000 and also in respect of Laze of $200,000.The downsizer contributions in respect of Amy and Laze are both valid, assuming all the other criteria are also met.
2.64 In determining whether the CGT main residence exemption applies it is the characteristics of the individual in respect of whom the downsizer contribution has been made that are relevant. The requirements will be satisfied where the individual satisfies all the requirements to have qualified for a CGT main residence exemption but for the fact that it was their spouse who held the ownership interest in the dwelling (rather than the individual).
Cap on a downsizer contribution
2.65 The total amount of downsizer contributions that can be made in respect of an individual is the lesser of $300,000 and the total proceeds that the individual and their spouse receive from disposing of their ownership interests in the dwelling. [Schedule 2, item 4, subsection 292-102(3)]
2.66 Where the cap on contributions is based on the total proceeds received by an individual or their spouse, the amount of the cap for a particular contribution is reduced by any earlier contributions in respect of those proceeds that have already been made by either spouse. [Schedule 2, item 4, paragraph 292-102(3)(b)]
2.67 Reductions for earlier contributions ensure that the total amount that is contributed between both spouses does not exceed the total proceeds that they received from the disposal of their ownership interests.
Making multiple contributions
2.68 Subject to the above caps, an individual can make as many downsizer contributions as they wish. However, the contributions can only ever be made from the proceeds of one sale of a dwelling. [Schedule 2, item 4, paragraphs 292-102(1)(h) and (i), subsection 292-102(3)]
2.69 The rules about downsizer contributions permit multiple contributions to be made from the same sale of a dwelling. This allows individuals to make contributions to different superannuation providers if they choose to do so. However, it does not extend to contributions from the proceeds of other properties, or of ownership interests in the same dwelling that are disposed of at a later time (for example, because of the sale of part of the ownership interests in a dwelling, or where there has been a sale and re-acquisition of the same dwelling).
2.70 While an individual can have contributions made from the proceeds of both their own interest and their spouse's ownership interest in a dwelling, any such ownership interests must have been disposed of under the same contract. [Schedule 2, item 4, paragraphs 292-102(1)(b), (c) and (i)]
2.71 Only downsizer contributions totalling up to $300,000 meet the definition of a downsizer contribution. A contribution is only a downsizer contribution to the extent that it is not over $300,000 either as a single payment or as multiple payments to different funds. Amounts over $300,000 need to be assessed as to whether they are eligible to remain in the fund under the non-concessional contribution cap. If not, they are to be refunded to the member, or, if they are left in the fund, the member may be subject to excess non-concessional contributions tax. [Schedule 2, item 4, subsection 292-102(3)]
Example 2.8 - making multiple contributions Nisha is aged 72 and has $400,000 from selling her main residence. She makes a $200,000 downsizer contribution in respect of herself to one superannuation provider.She also attempts to make an additional $200,000 downsizer contribution in respect of herself to a separate superannuation provider.The Commissioner forms a view that the second contribution is only a downsizer contribution to the extent it does not exceed the $300,000 cap when combined with the first contribution. As such, $100,000 of the contribution is not a downsizer contribution.After being notified by the Commissioner, the provider assesses whether Nisha could have made that $100,000 contribution as a non-concessional contribution.As Nisha was employed part-time and was under 75 years old, the $100,000 is able to be retained in the fund.If that was not the case, the fund must refund the amount to Nisha.
Example 2.9 - making a contribution larger than $300,000 Chris is aged 70 and has $400,000 from selling his main residence. He attempts to contribute the $400,000 as a downsizer contribution.The superannuation provider asks Chris whether he was working part-time during the financial year in which the contribution was made.However, as Chris was not working he was ineligible to make a non-concessional contribution.The provider refunds $100,000 to Chris and retains $300,000 as a downsizer contribution
Choosing to treat a contribution as a downsizer contribution
2.72 An individual must make a choice to treat a contribution as a downsizer contribution. This choice must be made in the approved form and given to the superannuation provider that accepts the contribution before or at the time the contribution is made. [Schedule 2, item 4, paragraph 292-102(1)(h) and subsection 292-102(8)]
2.73 Requiring a specific choice ensures that a contribution is only a downsizer contribution where the individual decides that it should be treated as such. Given that individuals can only make downsizer contributions in relation to the sale of a single dwelling, the choice enables individuals to choose between dwellings when they have more than one that would qualify under the downsizer rules. [Schedule 2, item 4, paragraph 292-102(1)(h)]
2.74 The requirement to notify a superannuation provider of the choice at or before the time of the contribution enables superannuation providers to know that they are able to accept the contribution irrespective of whether the individual satisfies one of the other conditions (such as age or working status) for making member contributions into superannuation.
2.75 As with all types of contributions, a superannuation provider does not have to accept a downsizer contribution if it does not meet their trust deed rules.
2.76 Having the notification made in the approved form also enables the Commissioner to specify any information that must be provided to determine that the contribution meets the requirements of a downsizer contribution.
2.77 The standard administrative penalties may apply to an individual who makes a false or misleading statement (for administrative penalties for false and misleading statements, see Division 284 of Schedule 1 to the Taxation Administration Act 1953).
2.78 It is expected that the Commissioner will require a superannuation provider to report a downsizer contribution it receives through its normal contributions reporting process under subsection 390-5(1) of Schedule 1 to the Taxation Administration Act 1953.
Contribution must be made within 90 days
2.79 A contribution must be made within 90 days, or such longer time as the Commissioner allows, of the change in ownership that occurs as a result of the disposal of the relevant ownership interest. This is usually the settlement date as it is when the balance of the purchase price for the contract is paid by the purchaser and received by the vendor, completing the transaction. [Schedule 2, item 4, paragraph 292-102(1)(g)]
2.80 This requirement is consistent with the timing rule that also exists for making contributions from the proceeds of a structured settlement. The Commissioner can extend the period for making a contribution without a request from the individual, where it is appropriate to do so.
2.81 Individuals are also able to request a longer period for making a downsizer contribution, and can seek a review of any decision the Commissioner makes in allowing a longer period (for example, if they are dissatisfied with the length of the extension), or a decision the Commissioner makes not to allow a longer period. [Schedule 2, item 4, subsection 292-102(6)]
2.82 For the avoidance of doubt, and also to maintain consistency with similar review rights, amendments are also made to clarify that the decision whether to allow an extension or not is subject to:
- the right to object under section 175A of the Income Tax Assessment Act 1936 or section 97-35 in Schedule 1 to the Taxation Administration Act 1953; and
- the application of the Administrative Decisions (Judicial Review) Act 1977.
[Schedule 2, item 4, subsection 292-102(7)]
Example 2.10 - Commissioner decides to extend the time for making a downsizer contribution Ben decided to sell his family home and settlement occurred on 13 March 2020. He purchases another home in a retirement village which is due to settle on 1 June 2020.The retirement village has only just been built and Ben's settlement is delayed until 5 August 2020 while final council approvals are obtained. Ben does not want to contribute funds from the sale to superannuation until after the settlement of his new property to ensure he has enough money to purchase and move into the property.Upon his request, the Commissioner gives Ben an extension of time to contribute until 30 September 2020. This extension allows Ben enough time to settle on the new property and make a contribution of the remaining money from his sale. Ben can afford to contribute $200,000 to his superannuation provider after the sale and makes this contribution on 20 August 2020.
Example 2.11 - Commissioner decides not to exercise the discretion to extend the time for making a downsizer contribution Rebecca just turned 64 in July 2021 and decides to sell her family home which she has lived in for 30 years with her husband James, who is 70. After the sale in August 2021 Rebecca requests an extension of time to make a downsizer contribution to July 2022, as it is more than 90 days from the date of settlement until she turns 65.The Commissioner does not extend the timeframe on the basis that the timing of the sale was within her control and that the timeframe is far in excess of the 90 days allowed to make the contribution. Rebecca decides to make a non-concessional contribution to her super fund from the sale proceeds which counts towards her non-concessional contributions cap.Her husband James is eligible to make a downsizer contribution and contributes $300,000 into his superannuation fund.
Contribution found not to be a downsizer contribution
2.83 The Commissioner may find that a contribution does not satisfy all the requirements of a downsizer contribution. It is expected that the Commissioner would write to the individual in respect of whom the contribution was made and ask them to provide any further information that the Commissioner should have taken into account.
2.84 There will be no review opportunity (other than under the Administrative Decisions (Judicial Review) Act 1977) at this stage of the process.
2.85 If the Commissioner remains of the view that a contribution that an individual has elected to treat as a downsizer contribution does not satisfy all the requirements to be a downsizer contribution, the Commissioner must notify the superannuation provider that received the downsizer contribution of this fact. [Schedule 2, items 4 and 6, subsection 292-102(9)and item 11 in the table in subsection 355-65(3) in Schedule 1 of the Taxation Administration Act 1953]
2.86 Once notified, the superannuation provider may assess whether they could otherwise have accepted the contribution from the member based on their age or their working status. Where a provider determines that the contribution could have been accepted for some other reason the contribution will continue to be allowed under the contribution acceptance rules, but will also count towards the individual's contributions caps, generally as a non-concessional contribution.
2.87 It is expected that the superannuation provider would be required to re-report or amend any previous report they had provided to the Commissioner indicating that they had previously accepted the contributions as a downsizer contribution. This information can be provided to the Commissioner through the provider's normal contributions reporting processes.
2.88 The superannuation provider may also decide that the contribution needs to be returned. Returning contributions is an existing responsibility that applies to superannuation providers that become aware of amounts that have been received that are inconsistent with the contribution acceptance standards (see subregulation 7.04(4) of the SISR 1994 or subregulation 5.03(4) of the RSAR 1997).
2.89 This could occur where the individual did not satisfy any other criteria for having member contributions at the time the contribution was made. If a contribution is returned to a member, it is also expected that the superannuation provider would be required to re-report or amend any previous report they had provided to the Commissioner indicating that they had previously accepted the contribution as a downsizer contribution.
2.90 The Commissioner may also send a copy of the notice to the Australian Prudential Regulation Authority (APRA). [Schedule 2, item 4, subsection 292-102(9) of the ITAA 1997]
2.91 APRA is the regulator that is responsible for compliance with contribution acceptance rules in respect of APRA regulated funds or retirement savings providers. The Commissioner would generally send a copy of the notice to APRA in respect of a provider that APRA regulates. In such circumstances, the question of whether contributions have been validly accepted is a matter for APRA and the superannuation provider.
2.92 If the fund complies with any notice sent by the Commissioner of Taxation to deal appropriately with amounts found not to be downsizer contributions, it will not be required to report any breach.
2.93 As the Commissioner regulates self-managed superannuation funds, there is no need for a copy of a notification to be provided to APRA where the Commissioner assesses that a contribution made to an SMSF was not a downsizer contribution.
Application and transitional provisions
2.94 The measure starts on 1 July 2018 and applies to dwellings where the exchange of contracts for their sale occurs on or after that date. [Schedule 2, item 7]
2.95 Proceeds from properties where the exchange of contracts occur before 1 July 2018 will not be allowed to be made as a downsizer contribution. This is despite the potential that the settlement of these sales does not occur until 1 July 2018 or later. This applies whether or not the settlement date occurs on or after 1 July 2018.