Ask an Adviser: What is the Downsizer Contribution, and will it impact my Centrelink entitlements?

Australia’s downsizer contribution scheme has gained notable attention as a strategy to boost retirement savings. But what exactly is it, and how does it impact Centrelink payments? We asked Apt Compliance Manager Tammy Tan to weigh in.

What is the downsizer contribution?

The downsizer contribution is a scheme introduced by the Australian government to assist older Australians. Under this program, individuals aged 55 or over can contribute up to $300,000 per person ($600,000 for a couple) into their superannuation from the proceeds of selling their primary residence. The proceeds are not reduced by costs incurred from the sale or any mortgage repayments. The contribution must be made within 90 days of settlement and cannot exceed the value of the sale. Notably, it does not require the contributors to purchase a downsized residence or a new residence at all.

Will a downsizer contribution impact my non-concessional contribution or total super balance caps?

No. The scheme’s primary appeal is its exemption from super’s non-concessional (after-tax) contribution cap. Therefore, you can make non-concessional contributions on top of a downsizer contribution in a financial year.

A downsizer contribution can also be made even if you have reached the total super balance (currently $1.9 million). However, your total super balance on 30 June at the end of the financial year will have included the downsizer contribution, which will subsequently affect your ability in the following financial year to make contributions determined by your total super balance, such as non-concessional contributions and carry-forward concessional contributions.

How does Centrelink assess the downsizer contribution?

1. Assets test: When determining your entitlements, the assets test considers the value of your assets, both within and outside Australia.

While Centrelink does not include your primary residence in the test, your superannuation balance is included once you reach pension age. Therefore, by increasing your superannuation balance through the downsizer contribution, your asset value may rise, which could reduce your Centrelink payments.

2. Income test: Proceeds from the sale of your home are subject to the income test, whether contributed to superannuation or retained in your bank account. Depending on where you fall against relevant thresholds, this deemed income could affect your payment rates.

Can I contribute more money to one spouse? 

Yes, and where that spouse is under pension age, it can help to optimise entitlements. Depending on the total proceeds, more funds can be allocated to the younger spouse (up to $300,000), and by retaining the funds in the accumulation phase, the contribution will be exempt from both the assets and income tests while the younger spouse is under pension age.

Can I contribute if I intend to purchase a new primary residence later?

Yes. If you have sold but not yet purchased a new primary residence, and the proceeds are intended to be used to purchase a new one, you can still make a downsizer contribution to hold the funds in a concessionally taxed superannuation environment for a period. For up to 2 years, the proceeds will be exempt under the Centrelink assets test and deemed at a lower rate under the income test.

Is a downsizer contribution right for me?

The downsizer contribution scheme can be a tax-effective strategy to boost retirement savings. However, it’s important to understand how it will fit within your financial plans and personal circumstances. As such, it is critical to discuss your options with your Apt adviser before proceeding.

Need advice on your retirement? Reach out to the experienced team at Apt Wealth Partners for trusted, holistic advice to live your best life in retirement.

General Advice warning

The information provided in this blog does not constitute financial product advice. The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. Apt Wealth Partners (AFSL and ACL 436121 ABN 49 159 583 847) and Apt Wealth Home Loans (powered by Smartline ACL 385325) recommends that you obtain professional advice before making any decision in relation to your particular requirements or circumstances.