House of Representatives

Explanatory Memorandum

(Circulated by authority of the Assistant Treasurer and Minister for Financial Services, the Hon Stephen Jones MP)

Chapter 5: Expanding eligibility for downsizer contributions

Outline of chapter

5.1 Schedule 5 to the Bill amends the ITAA 1997 to allow individuals aged 55 and above to make downsizer contributions to their superannuation from the proceeds of selling their main residence.

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

Context of amendments

5.3 The amendments in Schedule 5 to the Bill was announced by the Government during the 2022 Election. The amendments improve the flexibility for more Australians to contribute to their superannuation.

5.4 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 main residence and make a superannuation contribution based on the proceeds of the sale.

5.5 Prior to the amendments, paragraph 292-102(1)(a) provided that a downsizer contribution can only be made by individuals aged 60 years and above.

5.6 This measure reduces the eligibility age for downsizer contributions from 60 to 55 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

5.7 The amendments in Schedule 5 to the Bill reduce the age limit below 60 years of age to allow an individual aged 55 or over to make downsizer contributions to a complying superannuation plan from the proceeds of selling their main residence.

Related changes to the contribution acceptance rules

5.8 In conjunction with amendments contained in Schedule 5 to the Bill, changes to the contribution acceptance rules in the Superannuation Industry (Supervision) Regulations 1994 and Retirement Savings Account Regulations 1997 are required. These changes will ensure that downsizer contributions can be accepted by regulated superannuation funds and Retirement Savings Account Institutions for individuals aged 55 and over.

5.9 However, as the changes to the contribution acceptance rules require amendments to regulations, they are being progressed separately to the amendments in Schedule 5 to the Bill.

5.10 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

5.11 Prior to the amendments in Schedule 5 to the Bill, paragraph 292-102(1)(a) provides that only an individual aged 60 years or over may be eligible to make a downsizer contribution.

5.12 Schedule 5 to the Bill reduces the eligibility age for making downsizer contributions from 60 to 55 years. [Schedule 5, item 1, paragraph 292-102(1)(a) of the ITAA 1997]

5.13 This means that individuals aged 55 to 59 years who were not previously eligible to make downsizer contributions due to their age are now eligible to make downsizer contributions.

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

Commencement, application, and transitional provisions

5.15 The amendments provided by Schedule 5 to the Bill commence on the first day of the first quarter after the day the Bill receives Royal Assent [Clause 2].

5.16 The amendments apply to downsizer contributions made on or after the commencement of Schedule 5 to the Bill. [Schedule 5, item 2]

5.17 This means that individuals aged 55 to 59 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 main residence applied as downsizer contributions if made on or after the commencement of Schedule 5 to the Bill. Accordingly, the concessional treatment is available on and after the commencement of Schedule 5 to the Bill, if an individual is 55 years of age or older at the time a downsizer contribution is made and the other existing conditions are met.