Australians Boosting Their Superannuation by Downsizing Their Homes…
Home ownership has long been considered the great Australian dream. However, for a growing number of older Australians, it is also a strategic financial move—selling their homes to bolster their superannuation and secure their retirement.
Recent data from the Australian Tax Office (ATO) highlights this trend. In the 2023-24 financial year, nearly 13,000 individuals collectively contributed approximately $3.38 billion into their super funds by utilizing the federal government’s downsizer measure.
Understanding the Downsizer Measure
The downsizer measure enables eligible individuals aged 55 and over to contribute up to $300,000 from the proceeds of selling (or partially selling) their primary residence into their super fund. For couples, this means they can contribute up to $600,000 combined.
The ATO, which oversees the initiative, has established strict eligibility requirements. Notably, the home must have been owned for at least 10 years before selling, with the ownership period calculated from the original settlement date.
These downsizer contributions are classified as personal, post-tax super contributions. While they do not count toward the non-concessional contribution cap, they do factor into an individual’s total superannuation balance, calculated annually on June 30. Contributions cannot exceed the sale proceeds of the home.
A key benefit of this measure is that once funds are within the superannuation system, any income earned on them in pension phase—after the age of 60—is entirely tax-free.
Since its introduction in the 2018-19 financial year, the downsizer measure has been widely utilized. By the end of 2023-24, approximately 78,600 Australians had contributed a total of $19.88 billion to their super funds through this initiative.
The Shift from Homeownership to Retirement
The ATO’s 2023-24 data reveals that most Australians begin leveraging the downsizer measure after the age of 60. While contributions can be made from age 55, participation rates are significantly lower for those in the 55-59 age bracket.
The most active age group for downsizer contributions in the past financial year was 65-69, with 2,800 individuals contributing nearly $740 million to their super funds. This was followed by the 70-74 age group, where 2,600 individuals contributed $657.3 million.
Where Downsizing Is Most Popular
Unsurprisingly, Australia’s more populous states account for the highest number of downsizer contributions. According to the ATO, New South Wales, Victoria, and Queensland lead the way.
New South Wales: 4,300 contributions totaling $1.17 billion
Victoria: 3,100 contributions totaling $807 million
Queensland: 2,900 contributions totaling $737.7 million
Despite state differences in total numbers, the average contribution per individual has remained consistent across the country, hovering around $250,000.
A Financial Lifeline for Retirees
The fear of outliving retirement savings is a significant concern for many Australians. Research from Vanguard’s How Australia Retires report underscores the widespread anxiety surrounding financial security in retirement.
The downsizer measure has provided an avenue for Australians to enhance their superannuation, offering greater financial flexibility both before and after retirement. However, those considering this option—particularly individuals receiving a partial or full government Age Pension—should carefully assess the potential implications.
Seeking professional financial advice is essential, particularly regarding social security means testing and long-term financial planning. By doing so, retirees can make informed decisions about whether downsizing is the right strategy for their retirement future.
Rick Maggi CFP, Financial Advisor (Perth, Westmount Financial)
______________________________________________
Disclaimer
This document has been carefully prepared by Westmount Securities Pty Ltd (ABN 42 090 595 289, AFSL 225715) for general information purposes only. However, neither Westmount Securities Pty Ltd nor any of its affiliates guarantee the accuracy or completeness of any statements contained herein, including any forecasts. It is important to note that past performance is not a reliable indicator of future outcomes. This material does not consider the specific objectives, financial circumstances, or needs of any particular investor. Therefore, before making any investment decisions, investors should assess the relevance of this information to their individual situation and consult professional advice, taking into account their unique objectives, financial position, and needs.