Q&A - Downsizer and sale of a retirement village accommodation

Find out what your peers are asking – based on real-life questions submitted to TechConnect.

Can the disposal of a retirement village accommodation qualify for a downsizer super contribution?

By Stuart Sheary, Senior Technical Manager

Q: My clients, Pierre and Jan are both over age 65 and have recently sold their leasehold on a retirement village, which they have lived in for over 10 years. Is it possible for Pierre and Jan to make a downsizer super contribution on the disposal of a retirement village leasehold?

A: To be eligible to make a downsizer super contribution Pierre and Jan need to satisfy several requirements. A checklist at the bottom of the page can assist in determining eligibility however a disposal of a retirement village leasehold may qualify for a downsizer super contribution.

The downsizer legislation requires a disposal of an ownership interest in a dwelling which includes a ‘right to occupy’ the dwelling as defined by s118.130. A leasehold would ordinarily give residents a ‘right to occupy’ the dwelling. Under some circumstances dwellings are not included, for example mobile homes, which are specifically excluded from downsizer super contributions.

Fortunately, in this case their unit in a retirement village is a permanent dwelling.

The retirement village unit must also qualify for the main residence exemption (or would have if there were an assessable gain). A disposal of a retirement village leasehold can qualify for the main residence exemption as confirmed in the ATO’s Private Binding Ruling Authorisation Number: 1051322027435.

Units in retirement villages should not be confused with lifestyle villages which have different characteristics and which may have eligibility implications for downsizer super contributions. See IOOF TechConnect Q & A from September 2020 relating specifically to downsizer super contributions from the sale of a lifestyle village home.

If Pierre and Jan are unsure as to their eligibility, they can call the Australian Taxation Office Superannuation enquiries hotline on 13 10 20 for confirmation.

Downsizer checklist
  • Your client is age 65 or over at the time of making the contribution.
  • Your client or their spouse has sold an interest in a dwelling they (or a former spouse) have held for 10 years or more.
  • Your client’s dwelling is in Australia and is not a caravan, houseboat or other mobile home.
  • The gain/loss from the sale is at least partially disregarded under the main residence capital gains tax (CGT) exemption or would be if it was a CGT asset rather than a pre-CGT asset.
  • The contribution is made within 90 days of receiving the sale proceeds (unless an extension is granted by the ATO).
  • The downsizer contribution is the lesser of $300,000 or the proceeds of sale. For a couple, it is capped at $300,000 (each) and total downsizer contribution cannot exceed the couple’s combined capital proceeds.
  • A downsizer contribution has not previously been made from the sale of another home.
  • The downsizer contribution into super form is given to the super fund at or before the time the contribution is made.

More information

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

Disclaimer
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.