Part disposals of homes eligible for downsizer, ATO confirms

The ability to contribute the proceeds of downsizing part of a home into superannuation was one of several measures announced in the 2017–2018 Budget to reduce pressure on housing affordability in Australia, DomaCom explained.

“From 1 July 2018, eligible people aged 65 or over have been able to make a downsizer contribution into their superannuation of up to $300,000 from the proceeds of selling all or part of their home,” it said.

“Further, a downsizer contribution is not subject to the usual concessional or non-concessional contribution caps, and therefore they can still be made when the member’s balance exceeds $1.6 million.”

The ATO also makes it clear on its website that individuals can only make downsizing contributions for the sale of one home and that they cannot access again for the sale of a second home. 

The amount being contributed must be from the proceeds of selling a home where the contract of sale was exchanged on or after 1 July 2018 and the home must have been owned by the member or their spouse for 10 years prior to the sale. The home cannot be a caravan, houseboat or other mobile home.

Members must also provide their super fund with a Downsizer contribution into super form either before or at the time of making their downsizer contribution. The downsizer contribution must be made within 90 days of receiving the proceeds of sale, which is usually at the date of settlement. .

Prior to administrative binding advice from the ATO, DomaCom said it was generally considered that a person had to sell or dispose their entire interest in their home to be eligible to make a downsizer contribution.

“However, the ATO confirmation on a part disposal now means that SMSF retirees can sell a part interest in their home and make a downsizer contribution, therefore also allowing them to stay in their home with DomaCom’s Senior Equity Release,” it stated.

“While a residential property cannot be sold to an SMSF, a part interest of a home can be sold to DomaCom’s Senior Equity Release platform which provides cash to the member that they are eligible to contribute to an SMSF, retail or industry superannuation fund.”

DomaCom noted that the COVID-19 pandemic has greatly increased pressure on retirees who are seeing their retirement incomes substantially decreased due to the significant reduction in investment returns, especially substantially lower interest and dividend yields.

“The self-funded retiree cohort has not benefited from many recent government assistance programs including the JobKeeper and JobSeeker, so allowing them to top up their SMSF using their own resources is one measure that can be delivered without impacting the budget,” DomaCom said.

“Naturally, appropriate financial and investment advice should be obtained.”

DBA Lawyers director Daniel Butler said the downsizer contribution scheme has been a popular strategy and with this latest advice provided to DomaCom on the part disposal of a home it may become even more popular.

"A lot of people that may have withheld doing a downsizer on the basis that they don't want to give up their family home. It's a tough call for a lot of people, giving up the family home is an emotional decision," he said.

While there may be similar home equity release products on the marketplace, it appears that DomaCom has been the first to receive this administrative binding advice from the ATO, he said.

"I believe the advice is most likely based on the DomaCom platform, so if you were looking at another supplier, you'd have to question whether they have their own advice and what the unique features of their product are," he said.

Mr Butler said other products available may use different types of arrangements such as a tenants in common arrangement where there is a direct interest.