A puzzling anomaly

downsizer contributions age

Further moves to reduce the eligibility age to make downsizer contributions may run counter to its intentions to get larger houses back onto the housing market.

The ability to make downsizer contributions has been very popular among older Australians since the measure’s introduction on 1 July 2018. This is where individuals aged 60 or over can contribute up to $300,000, and couples $600,000, to their super fund from the proceeds of the sale of their primary residence, a property they have owned for at least 10 years.

And you know the measure has been a winner given Canberra’s propensity to open it up to more people. This started with the 2021 budget where it was announced the qualification age for downsizer contributions would be reduced from 65 years of age to 60 – a policy passed into law just a few months ago.

Then in the lead-up to the last federal election, the Morrison government announced, if re-elected, it would lower the qualification age for downsizer contributions from 60 to 55. The ALP almost immediately said it was a measure it would also commit to and, true to its word, the Albanese government introduced a bill to parliament last month to do just that.

Now I’m all in favour of any measure allowing individuals to put more money into the super system, particularly one that allows them to do so at a time when they have the spare cash to make the contribution.

But I’ve always been a little concerned over the machinations of this measure and recent comments made by Assistant Treasurer and Financial Services Minister Stephen Jones perhaps indicate our politicians don’t really understand what this measure is actually able to achieve.

While announcing the government had tabled the bill in the lower house that will reduce the minimum age for downsizer contributions, the Member for Whitlam said: “This measure will increase the availability of suitable housing for growing Australian families by encouraging more older Australians to downsize to homes that better meet their needs.”

Really? One thing about the downsizer rules is you don’t actually have to downsize your residence. So you could actually buy a bigger home after selling your previous abode and still make a downsizer contribution. Doesn’t that mean individuals in the downsizer bracket could still be competing with the “growing Australian families” for the same types of properties?

Also, when the downsizer measure was introduced it was all pretty straightforward. Being applied only to individuals who were aged 65 and over, it was a good incentive for them to sell their home if they were considering doing so. Being aged 65 or over meant they had reached retirement age and would have definitely been in the sweet spot of planning what to do with the next stage of their life.

Lowering the qualifying age to 55 gives a whole different dynamic to the measure. For example, if you sell your home when you’re 55, there is a good chance you will buy another significant property and will still be a decade away from retirement age. The timeframe means you will potentially have another piece of real estate to sell and make a downsizer contribution down the track. Does this make it an incentive to sell your property now?

And what if you make a downsizer contribution when you’re 55 and that action ends up preventing you from making non-concessional contributions at a later date because of the total super balance thresholds – in effect reducing the amount of money you can allocate to super rather than increasing it?

There is no doubt the downsizer contribution provisions have been popular and have worked well so far, but let’s hope our politicians understand the subtleties involved with the measure and not turn it into just another vote-winning exercise among older Australians.

If you would like to find out more about the downsizer rules, they will be discussed in more detail at the smstrusteenews SMSF Trustee Empowerment Day 2022 to be held on 15 September. To register, visit https://smstrusteenews.com.au/events/smsf-trustee-empowerment-day-2022/ .


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