Why downsizers are tripping up on $300k super contributions

Downsizer contributions offer a valuable opportunity to top up super later in life but it's important to get them right.

Downsizer contributions are special super contributions that can be made by older people who sell a home. They were introduced in 2018 and most of the rules have stayed the same ever since.

There is one exception; when they were first legislated, they were only available to people who were over the age of 65. The age of eligibility was reduced to 60 and then to 55 during the 2022-23 financial year.

Officially, the reason these contributions exist is to allow “older” people a last, one-time-only opportunity to make super contributions if they have freed up capital when selling a home they’ve owned for a least 10 years. 

Downsizer contributions are special in that they can be made very late in life (most other types of contributions cut out at 75, while there’s no upper age limit for downsizers).

They can also be made by anyone who meets the rules, no matter how much they already have in super (whereas those with super balances over $2.1 million at June 30, 2026 cannot make any non-concessional super contributions).

There are a number of eligibility rules but, interestingly, downsizer contributions are not limited exclusively to people who are genuinely downsizing their home.

While eligibility is triggered by an individual (or their spouse) selling a home, the money contributed to super doesn’t have to come from the home proceeds. The new home purchased does not need to be cheaper or smaller than the old one.

Some people make a downsizer contribution using other money even if they are actually “upsizing” to a more expensive home – they just use the downsizer rules as an extra opportunity to get money into super.

But despite the flexibility, some people still make a mess of downsizer contributions. These are the five downsizer failures I generally see.

1. Incorrect paperwork

At the top of the list is the paperwork. This is one type of contribution where it’s absolutely critical that a particular Tax Office form is given to the receiving super fund at the time the contribution is made (not later).

If the contribution arrives first, the fund (even a self-managed super fund) has no choice but to treat the contribution as if it were a personal (non-concessional) contribution.

The consequences here can be disastrous – the contribution might be rejected entirely for anyone aged over 75. Even worse, the contribution might be accepted but later treated as an “excessive” contribution with negative tax consequences.

This happens for those who already have too much in super to make any more non-concessional contributions. By the time someone realises their mistake, it will usually be too late to fix things and make a new downsizer contribution.

2. Getting the amount wrong

The second frequent mistake is getting the limit wrong. Like most other types of super contribution, downsizer contributions are capped – in this case at $300,000 per person.

There are two mistakes people make when it comes to this cap. First, they assume the cap is the same as the cap on non-concessional contributions for people who are making three years’ worth of these contributions at once (known as using the bring forward rules).

This is probably because the two figures were the same back in 2018 but the downsizer cap has stayed fixed at $300,000 ever since, whereas the non-concessional (and bring forward) cap has increased.

There’s an added requirement that downsizer contributions made for a particular home sale can’t add up to more than the proceeds from the sale. For example, if a house sells for $500,000 and both members of a couple intend to make downsizer contributions, they can’t make $300,000 each. That said, rising house prices have made this complexity largely irrelevant these days.

3. Not using the contribution

The third mistake relates to underutilising the opportunity.

Downsizer contributions are triggered by the sale of a home, but in some cases an investment property sale will qualify.

It’s important to check the precise rules for your situation with your accountant.

But any property that qualifies for even a partial capital gains tax exemption because it was your home for a time can open up the opportunity for a downsizer contribution.

There are other rules, and it’s important to meet them all, but don’t assume your property is ruled out just because it’s not your home at the time of sale.

A related issue is that it doesn’t matter if the property is owned by your spouse rather than you. Again, as long as it has been your home (or more accurately, your principal place of residence) at some point, both you and your spouse can make downsizer contributions from the same property sale.

4. Messing up the timing

The fourth common error is timing. Downsizer contributions have to be made within 90 days of the property sale settlement, and your age is tested at the time the contribution is made.

That means it’s possible to sell your home shortly before your 55th birthday and as long as you’ve turned 55 by the time you make the contribution (and you’re still within 90 days of settlement), you’ll meet the test.

5. Overlooking the strategy

The final common mistake is assuming that if you don’t want to add money to your super fund, downsizer contributions are not for you.

In fact, some people use them as part of a recontribution strategy. In other words, the sale of a home triggers the right to make the contribution, but instead of adding new money to their super fund, they withdraw $300,000 from the super they already have and recontribute it.

The reason? Future tax planning for their adult financially independent children. Should the children inherit that super balance in the future, no tax will be paid on the $300,000 downsizer contribution but up to $51,000 (15 per cent plus the Medicare levy) might have been paid on this amount if it hadn’t been withdrawn and recontributed.

For the last few years, ATO data shows about 16,000 people have made downsizer super contributions each year, adding over $4 billion a year to the super system.

Given Australia’s demographics and the concentration of property ownership among those over 55, I expect we will see this continue to rise.

For more information on downsizer contributions, read our recent Knowledge Centre article here: What is a downsizer contribution? Eligibility rules and common misconceptions.