On 7 November 2018, the Commissioner issued Law Companion Ruling: LCR 2018/9 on the application of the recently enacted ‘downsizer contributions’ to Superannuation Funds – being contributions of up to $300,000 from the sale of a persons (or their spouses) interest in a main residence.
This measure was introduced in Schedule 2 to the Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No.1) Bill 2017, which received Royal Assent as Act No. 132 of 2017, on 13 December 2017 (see related Tax Technical Article).
The ruling helps explain this new measure and expands on the various attributes of, and requirements for, superannuation contributions, that ‘downsizer contributions’. This concession is available on sales of dwellings under contracts entered into on or after 1 July 2018. [para 10 of the Ruling]
The concessions allowed to ‘downsizer contributions are as follows.
- They are not counted towards the ‘contribution caps’ as they are excluded from the definition of a non-concessional contributions, under 292-90(2)(c)(iiia) of the ITAA97. The individual must, however, make the relevant election and can not claim a deduction for the contribution, under s290-167 of the ITAA97. [para 6 & 11]
- The individual does not have to satisfy a ‘work test’ to make a downsizer contribution of 7.04(1) of SISR. [para 7]
The requirements to be a ‘downsizer contribution’ are as follows [para 8]:
- the contribution must be made to a ‘complying superannuation fund‘;
- It must be made by an individual who is aged 65 years, or older, at the time the contribution is made, under s292-102(1)(a) of the ITAA97.
- the contribution must be not more than the capital proceeds received from the disposal of an interest in a qualifying dwelling, in Australia, held by the individual or their spouse, just before the disposal, under s292-102(1)(b), (c) and (f).
- the individual need not purchase another dwelling.
- the individual or the spouse (or both of them) must have been the only persons to have held an ownership interest in the dwelling for at least 10-years prior to the end of that ownership interest (which is generally on settling the sale); ownership condition, under s292-102(1)(e)&(2).
- any capital gain or loss from the disposal of the dwelling must have qualified (or would have qualified) for the main residence CGT exemption in whole or part, under s292-102(1)(d).
- the contribution must have been made within 90 days of disposing of the dwelling, or such longer time as allowed by the Commissioner, under s292-102(1)(g).
- a choice is made to treat the contribution as a downsizer contribution, and the complying superannuation plan provider is notified in the approved form of this choice at or before the time the contribution is made, under s292-102(1)(h)&(8).
- the individual has not previously made downsizer contributions, or had one made on their behalf, in relation to an earlier disposal, under s292-102(1)(i); and
- the maximum amount of the contributions is the lesser of either $300,000, or the proceeds from the sale of the interests in the dwelling, under s292-102(3).
CPD questions (answers available)
- After what date must the contract, for the sale of the relevant dwelling, be made (for a subsequent contribution to be eligible for the concession)?
- What age must a contributor be, to qualify for the concession?
- Does a ‘downsizer contribution’ count towards a ‘contribution cap’?
- Does the contributor have to satisfy a ‘work test’ (given that they are at least 65 years of age)?
- Do they have to buy another dwelling (to qualify for the concession);
- The contributing individual or spouse have been the only owners of the dwelling, for what period, immediately before his/her/their ownership interest ceased?
- Is it only after the sale of CGT exemption ‘main residence’ dwellings, that qualifying contributions can be made?
- How quickly after disposing of the dwelling, must a qualifying contribution be made to the fund?
- If the Commissioner extends this period of time, must extension have been allowed, prior to a qualifying contribution being made?
- Can an individual make a qualifying contribution, when it was only their spouse that owned the dwelling?
- What is the largest contribution that can be made, after the sale of a relevant dwelling?
- Can an individual (or their spouse) claim the concession after the sale of a second sale?