Q&A – Downsizer and divorce

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

By Scott Quinn, Senior Technical Services Manager

Does transferring an interest in a family home through divorce settlement create an opportunity to make a downsizer super contribution?

Q: Neva (age 68) and Hiram (age 67) are in the process of divorce. Neva plans to transfer her interest in the family home to Hiram and will receive payment as part of the divorce settlement. Once this is complete, can Neva make a downsizer super contribution with her pay out?

A: One of the eligibility requirements for downsizer contributions is that the capital gain (or loss) from the disposal of the property must, at least partially, be disregarded under the main residence capital gains tax (CGT) exemption or would be eligible if it wasn’t a pre- 20 September 1985 asset.

Generally, when a property is transferred due to divorce or separation, CGT rollover relief applies to disregard the capital gain (or loss).

Where CGT rollover relief applies, the main residence exemption is not applicable. This means it is unlikely the transferring spouse can make a downsizer contribution from the transfer of property on divorce or separation.

In this instance, when Neva transfers the property, rollover relief applies to disregard any capital gain (or loss). The cost base of the asset is transferred to Hiram, who is receiving the property and he will make a capital gain or loss when he subsequently disposes of the property.

Therefore, Neva is unable to apply the main residence exemption and unlikely to be able to make a downsizer contribution. However, Hiram may be able to make a downsizer contribution when he sells the home assuming he meets all other eligibility criteria.

Please refer to the ATO website for where CGT rollover relief may apply.

For additional information including other eligibility requirements refer to our Strategy Guide – Downsizer contributions on Fast Fact Finder website.

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.