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By Josh Rundmann, Technical Services Manager, IOOF TechConnect

Q: I have older clients living in the areas affected by the bushfires. If their homes are destroyed and they choose to sell their property rather than rebuild can they make a downsizer contribution?

A: At a high level, a downsizer contribution can be made when all of the following conditions have been met:

  • The client is age 65, or over, at the time they make the contribution.
  • The client, their spouse or former spouse has sold an interest in a dwelling they have held for ten years – which is not a caravan, houseboat or other mobile home.
  • The gain or loss from the sale is at least partially disregarded under the main residence capital gains tax (CGT) exemption, and
  • The contribution is made within 90 days of settlement, and the appropriate paperwork is given to the super fund at or before the time the contribution is made.

The maximum downsizer contribution is the lesser of $300,000 per person or the proceeds received from the sale of the interest in the property. The amount contributed into super is exempt from the non-concessional contributions (NCC) cap.

In situations where a home is destroyed the owner may not wish to rebuild but instead simply move on by selling the remnants of the property without subjecting themselves to the stress of building a new residence upon it. In this situation, the Income Tax Assessment Act 1997, section 118-160 allows the main residence exemption to apply even though no dwelling is on the property. However, the downsizer contribution requirements are explicit in that what needs to be disposed of is a dwelling, as described above. There are allowances within the downsizer contribution rules for properties that have been compulsorily acquired and a replacement property obtained, however, there is no equivalent relief to ‘deeming’ a dwelling to be on a property in the case of destruction of the previous home.

In such situations, the client will need to construct a new dwelling on the property to qualify for a downsizer contribution.

More information

If you have any questions, or would like more information, please contact the IOOF TechConnect team on 1300 650 414.

The information in this section of the website is intended for financial advisers only and is not to be distributed to clients. It has been prepared on behalf of Australian Executor Trustees Limited ABN 84 007 869 794 AFSL 240023, IOOF Investment Management Limited ABN 53 006 695 021 AFSL 230524, IOOF Investment Services Ltd ABN 80 007 350 405, AFSL 230703 and IOOF Ltd ABN 21 087 649 625 AFSL 230522 based on information that is believed to be accurate and reliable at the time of publication.