How one couple saved $11,000 a year in tax after selling their home - downsizer super contribution.
A retired couple I met recently had just sold their long-term Canberra home.
They were sitting on $600,000 in cash and unsure what to do next.
If that $600,000 stayed in cash earning 4%, the interest would be taxed at their highest marginal rate — 47%. That’s over $11,000 a year in tax.
By contrast, using the downsizer contribution, they could move up to $300,000 each into super.
Inside super:
Investment earnings are taxed at a maximum of 15% in accumulation phase
Or 0% if supporting a retirement pension
And in recent years, some diversified investment portfolios have experienced periods of strong double-digit returns, well above the cash rate. Of course, returns vary from year to year and past performance isn’t a guarantee of future results.
That combination — potentially higher long-term returns and lower tax — can make a meaningful difference over time.
Many people also don’t realise:
The property doesn’t need to be your current home. It must have been owned for 10 years or more and at some point qualified for the main residence CGT exemption, even if it’s now an investment property.
It can be used regardless of your total super balance.
It can only be used once in your lifetime.
You have just 90 days from settlement to make it happen.
The correct paperwork must be submitted to the super fund at the time of contribution.
And it cannot be backdated.
As a financial adviser here in Canberra, I’ve seen people seek advice after settlement, only to discover they’ve missed the 90-day window.
Just as importantly, the downsizer contribution isn’t automatically the right move.
We need to consider:
Transfer balance caps
Estate planning outcomes
Total super balance rules
Cash flow needs
And upcoming changes like Division 296 for larger super balances
At Thomson Wealth, we typically need a few weeks to engage, research your situation properly, compare your options, and present tailored written advice before implementing the strategy.
That ensures all the ducks are lined up before settlement occurs.
If you’re over 55 and planning to sell a property you’ve owned for more than 10 years, the key is to get advice before you sell — not after.
If this sounds relevant, you can book a 15-minute chat to see whether it’s worth exploring.