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 2% Medicare levy)
• Their home is valued at $2,000,000 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 $1,000,000 after they downsize.

Under rules to 30 June 2022:

• Darren and Laura are not eligible to make a downsizer contribution into super as they will be under 65 on 1 July 2023.
• They can both trigger the bring-forward rule and contribute $330,000 each ($660,000 total) into their respective super funds.
• The remaining $340,000 would need to be invested outside super. They would be eligible to make further non-concessional contributions two financial years after making the $660,000 bring-forward contribution.

Under new rules from 1 July 2022:

• Darren and Laura will be able to utilise the downsizer contribution rules as they will be older than 60 on 1 July 2023. They will be able to tip in 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 non-concessional contributions into super.
  • They could even trigger the bring-forward rule by contributing $330,000 for Laura and contribute the remaining $70,000 in Darren’s super to preserve the bring-forward rule for him in case they have other personal assets they wish to contribute over the next two years.
• This allows them to contribute the full $1,000,000 into super and boost 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 since 2010 (12 years), so it qualifies as capital gains tax (CGT) exempt
• 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 $700,000.

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 $700,000 and are leftover with $660,000 after paying capital gains tax. They could contribute a total of $600,000 ($300,000 each) into their super funds using the downsizer contribution rules.

Potential strategy:

• With the new super rules effective from 1 July 2022, they could each trigger the bring-forward rule and make non-concessional contributions of $660,000 combined ($330,000 each) into their super funds.
• Suppose they sell their current home at age 85 to move into a retirement home and are not eligible to trigger the bring-forward rule at that time. However, they will be eligible to make downsizer contributions of $300,000 each.
• 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.

Read more on how you can continue treating your former home as your main residence.