How can Australian Expats utilise the Downsizer Contribution to Super after returning to Australia?

As an Australian Expat, after years of building your career overseas, the prospect of returning to Australia may bring about a focus on planning for your retirement.

A little-known strategy that can help returning Australian Expats prepare for retirement is the downsizer contribution. Australian Expats commonly choose to rent out their former main residence before relocating overseas, and often it is held until they return to Australia. This presents an opportunity for the downsizer strategy to be employed.

While the downsizer scheme was initially designed with retirees in mind, Australian expats returning home can also take advantage of it, providing they meet certain conditions. Let’s break down how Australian expats can make a downsizer contribution to superannuation when they return to Australia.

What is the Downsizer Contribution?

The downsizer contribution allows eligible Australians to contribute up to $300,000 ($600,000 for a couple) to their super account from the sale of their existing or previous main residence property. The funds can be used to bolster retirement savings and offer financial security, especially after downsizing to a smaller home.

It’s important to note that the downsizer contribution is not subject to the usual contribution caps or age restrictions that apply to other forms of superannuation contributions, such as concessional or non-concessional contributions.

Eligibility Requirements for Expats Returning to Australia

As a returning Australian Expat, there are specific criteria that need to be met for you to make a downsizer contribution to your superannuation:

Age: You must be aged 55 or over at the time the sale of your property is completed. If you're married or in a de facto relationship, both partners can make a contribution of up to $300,000 each, provided they meet the eligibility requirements.
Primary Residence: The proceeds from the sale of the property must be either exempt or partially exempt from capital gains tax (CGT) under the main residence exemption. For Australian Expats, this means the property must be or was previously your main residence. The property must also be sold where you were a resident for tax purposes of Australia.
Holding period: Your property must be owned by you or your spouse for 10 years or more before the sale – the ownership period is generally calculated from the date of settlement of purchase to the date of settlement of sale.
Sale Completion: The downsizer contribution must be made within 90 days of completing the sale of the property.
Superannuation Fund: You must have an eligible superannuation fund to make the contribution. If you don’t already have a super account, you’ll need to set one up, which can be done upon your return to Australia.

Benefits of the Downsizer contribution.

The amount you contribute will be added to your super balance, and you can benefit from the compound growth of your superannuation fund. The downsizer contribution allows you to contribute to your super without using up other contribution caps such as the concessional or non-concessional caps. This is important if you plan to make other contributions to super as part of your retirement plan.

If you are nearing retirement, this additional contribution could make a meaningful difference to your financial security.

Important Considerations

While the downsizer contribution can be an excellent way for returning Australian expats to boost their retirement savings, there are a few important things to consider:

Tax Implications: Downsizer contributions are made from after-tax money, meaning they are not taxed when contributed to your super. However, the funds will still be subject to the tax regime of your super fund.
Impact on Pension Entitlements: If you are nearing retirement, making a downsizer contribution can affect your eligibility for the Age Pension or other government benefits. It’s important to understand how these contributions might impact your broader financial situation.
Consolidating Superannuation Funds: If you’ve had multiple super accounts over the years, consolidating them into a single super fund before making a downsizer contribution can reduce fees and make it easier to manage your super.

Final Thoughts

Returning to Australia after living abroad can be an exciting new chapter in your life. Not only can you reconnect with your roots and loved ones, but you also have the opportunity to strengthen your financial position for the future. The downsizer contribution is a powerful tool for those aged 55 and over to use the sale of their property to make a meaningful addition to their superannuation fund, and as an Australian expat returning home, you can take full advantage of this scheme.

Before making any decisions, it’s always a good idea to consult with a Financial Advisor to ensure that the downsizer contribution is the right choice for you and your long-term financial goals.

Runway Wealth Management is the trusted Financial Adviser to the Australian Expat community. Our tailored advice is backed by expertise, education and experience, which allows us to be at the forefront of Australian Expat Financial Planning.

If you would like to speak to one of our Expat Financial Advisers about this blog or if you have other queries, we would be more than happy to speak with you. Feel free to send us an enquiry through the ‘Contact Us’ tab provided in the below link:

General Advice Disclaimer: The information contained herein is of a general nature only and does not constitute personal advice. You should not act on any recommendation without considering your personal needs, circumstances, and objectives. We recommend you obtain professional financial advice specific to your circumstances.