For many older Australians, particularly those supporting adult children or ageing parents, downsizing can be a smart approach to free up funds for retirement by contributing the proceeds directly into superannuation.

But selling the family home is often an emotional decision that requires careful planning. From timing and financial implications to lifestyle considerations, there are a number of factors to consider when deciding if downsizer contributions are right for you.

What are downsizer contributions?

A downsizer contribution allows eligible individuals to contribute up to $300,000 from the sale of their home directly into their superannuation – without counting towards the usual contribution cap. This can provide a significant, tax-free boost to retirement savings.

Am I eligible to make a downsizer contribution?

To qualify for a downsizer contribution, you must:

• Be aged 55 or over when the contribution is made
• Have sold Australian property that was previously your main residence (except caravans, mobile homes, or houseboats)
• Have owned (or your partner must have owned) that property for at least 10 years.
• Claim the main residence capital gains tax exemption (for part or the full ownership period)
• Make the contribution to your super fund within 90 days of settlement
• Submit an election form to your superfund to treat the contribution as a downsizer contribution before or at the time of contribution
• Not claim a tax deduction for the contribution
• Not have made a downsizer contribution in relation to a previous property sale.

These rules are strict, and missing any one of them will disqualify your contribution.

Timing mistakes can be costly

The 90-day deadline to contribute post-settlement is not one to miss. If you do, the ATO only offers extensions in very limited circumstances. Many people assume they have time to decide what to do with the sale proceeds, but missing this window may mean the contribution is not a downsizer contribution and can fall under a different contribution cap. Or you may lose the opportunity to contribute and potentially miss out on the tax advantages of super.

Cashflow and pension planning

If you're under 65, downsizer contributions are preserved in super unless a condition of release is met (such as retirement from age 60). This can create cashflow challenges if you need funds for a new home, healthcare or living expenses.

The strategic use of downsizer contributions may also improve Age Pension eligibility for couples with an age gap. Contributing to the accumulation account of a spouse who is aged less than 67 may help the older spouse qualify for a higher pension, potentially worth thousands annually.

Contribution caps and tax risks

There’s a $300,000 cap on downsizer contributions. However, if you miss one of the requirements, your contribution will not be a downsizer contribution and you may have to pay extra tax, depending on the type of contribution. When contributing to super it’s important to check your contribution caps.

Information about your contributions, caps and total super balance can be found by logging into myGov and linking the ATO service.

Don’t overlook investment properties

The property sold doesn’t need to be your main residence at the time of sale. If it is an investment property that used to be your home you may be eligible for a partial main residence capital gains tax exemption and still qualify for a downsizer contribution. In some cases, if your spouse owns the property and you’ve lived in it, you may also be eligible.

Where possible, seek advice

Downsizing can unlock substantial financial benefits, but only if done with a clear strategy. It’s important to seek professional financial advice to ensure your contribution timing, pension planning and estate arrangements are aligned.