Case study: Combining downsizer and non-concessional contributions

Case study 1: Using downsizer and non-concessional contributions together

Darren and Laura are both 60 and want to fully retire in the next 12 months on 1 July 2023.

• They are both taxed at a marginal tax rate of 39% (including the 2% Medicare levy)
• Their home is valued at $2 million and they have lived in it for more than ten years
• Darren’s super balance is $600,000
• Laura’s super balance is $400,000.

Once they retire, they wish to downsize from their large home into an apartment for security and ease of maintenance. They estimate that they will have net sale proceeds of $1 million after they downsize.

• Darren and Laura will be able to utilise the downsizer contribution rules as they are older than 55. They will be able to contribute a total of $600,000 ($300,000 each) into their super.
• The remaining $400,000 can be contributed into super by triggering the bring-forward rule. For example, each of them could contribute $200,000 as a non-concessional contribution into super.
  • They could even trigger the bring-forward rule by contributing $360,000 into Laura’s super account and the remaining $80,000 into Darren’s account to even up their balances and preserve the bring-forward rule for Darren in case they have other personal assets they wish to contribute over the next two years.
• This allows them to contribute the full $1 million into super for a significant boost to their retirement savings.

Case study 2: Downsizer contribution when you have multiple homes

Andrew and Eliza are 74 and retired.

• They have been living in their current home for more than 10 years, so it qualifies as a capital gains tax (CGT) exempt property.
• They also have a holiday home, which was their former principal place of residence and qualifies for a partial-CGT main residence exemption. It’s valued at $800,000.

Note: Downsizer contributions can be made using a residence that qualifies for CGT exemption in whole or part. The property also does not need to be treated as the person’s main residence at the time of sale. However, downsizer contributions cannot be made with sale proceeds of dwellings that were purely held for investment purposes.

Andrew and Eliza want to sell their holiday home as they are getting older and don’t want to maintain two houses.

Let’s assume that Andrew and Eliza sell the holiday home for $800,000 and are left with $720,000 after paying capital gains tax. Out of this, they could contribute a total of $600,000 ($300,000 each) into their super funds using the downsizer contribution rules and then $120,000 as non-concessional contributions.

Potential strategy:

• They could each trigger the bring-forward rule and make non-concessional contributions of $720,000 combined ($360,000 each) into their super funds. This transfers all sale proceeds into super in one go.
• Later on, suppose they sell their current home at age 85 to move into a retirement home. By this time, they won’t be eligible to trigger the bring-forward rule again. However, they will still be able to make downsizer contributions of $300,000 each because there is no upper age limit for these contributions.
• By triggering the bring-forward rule first and preserving the downsizer contributions (as it can be utilised only once) for when they sell their current home, they can potentially contribute more assets into super.