House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Josh Frydenberg MP)

Chapter 3 Reduced eligibility age for downsizer contributions

Outline of chapter

3.1 Schedule 3 to the Bill amends the ITAA 1997 to allow individuals aged 60 and above to make downsizer contributions to their superannuation plan from the proceeds of selling their home.

3.2 All legislative references in this chapter are to the ITAA 1997 unless otherwise indicated.

Context of amendments

3.3 The amendments in Schedule 3 to the Bill form part of the Flexible Super package, which was announced by the Government on 11 May 2021 in the 2021-22 Budget. This package improves the flexibility for older Australians to contribute to their superannuation.

3.4 Downsizer contributions allow individuals who may otherwise be prevented from making contributions into their superannuation, for example, due to their age or contribution cap restrictions to sell their home and make a superannuation contribution based on the proceeds of the sale.

3.5 Prior to the amendments, section 292-102(1)(a) provided that a downsizer contribution can only be made by individuals aged 65 and above.

3.6 This measure reduces the eligibility age for downsizer contributions from 65 to 60 years of age. This provides greater flexibility for older Australians to contribute to their superannuation and may encourage individuals to downsize sooner to a home that better suits their needs, thereby freeing up the stock of larger homes for younger families.

Summary of new law

3.7 The amendments in this Schedule reduce the age limit below 65 years of age to allow an individual aged 60 or more to make downsizer contributions to a complying superannuation plan from the proceeds of selling their home.

Related changes to the contribution acceptance rules

3.8 In conjunction with amendments contained in this Schedule, changes to the contribution acceptance rules in the SIS Regulations and RSA Regulations are required. These changes will ensure that downsizer contributions will be accepted by regulated superannuation funds and RSA institutions for individuals aged 60 and above.

3.9 However, as the changes to the contribution acceptance rules require amendments to regulations, they are being progressed separately to the amendments in this Schedule.

3.10 The details of the related changes to the contribution acceptance rules will be covered by the explanatory statement that accompanies the amending regulations.

Comparison of key features of new law and current law

Detailed explanation of new law

3.11 Prior to the amendments, section 292-102(1)(a) provides that only an individual aged 65 years or over may be eligible to make a downsizer contribution.

3.12 This Schedule reduces the eligibility age for making downsizer contributions from 65 to 60 years. [Schedule 3, item 1, section 292-102(1)(a), ITAA 1997]

3.13 This means that individuals aged 60 to 64 years who were not previously eligible to make downsizer contributions due to their age are eligible to make downsizer contributions.

3.14 Contributions should otherwise meet all other criteria that currently apply to downsizer contributions.

Application and transitional provisions

3.15 The amendments provided by this Schedule commence from the first day of the first quarter after the day the Bill receives Royal Assent [Clause 2].

3.16 The amendments apply to downsizer contributions made on or after 1 July 2022. [Schedule 3, item 2]

3.17 This means that individuals aged 60 to 64 years who were not previously eligible to make downsizer contributions due to their age may now qualify to have sale proceeds from the sale of their home applied as downsizer contributions if made on or after 1 July 2022. Accordingly the concessional treatment is available on and after 1 July 2022, if an individual is 60 years of age or more at the time a downsizer contribution is made and the other existing conditions are met.