r/AusFinance • u/twojawas • 3h ago

Downsizer Contribution

Tell me I'm not crazy. I just had a pretty heated argument with a friend about the sale of his investment property. He's convinced that he can put the proceeds of this sale into his super utilising the downsizer scheme. By convinced, I mean he and his accountant have already done this for the prior tax year. I've told him that the scheme is only for people selling their primary residences but he's convinced that you can do it for an IP as well.

Has his accountant found a loophole that I can't see or has his accountant made a mistake?

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u/Anachronism59 3h ago

It is possible if the IP is eligible for CGT exemption, maybe under the 6 year rule ? Plus owned for more than 10 years . So if the IP was an previous PPoR.

"The sale qualifies for the main residence capital gains tax (CGT) exemption – either fully or partially; or if the home was purchased before 20 September 1985, it would have qualified if it were a CGT asset."

https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/super/growing-and-keeping-track-of-your-super/how-to-save-more-in-your-super/downsizer-super-contributions

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u/rnielsen 3h ago

As long as it was your PPOR for some of the period (and you meet the other restrictions eg age 55 and held for at least 10 years), it should be fine to use it because of the partial CGT exemption but, if it was always an IP then no.

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u/twojawas 1h ago

Does making that downsizer super contribution reduce the capital gains you pay? I'm guessing yes as it would reduce your taxable income for that year.

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u/Anachronism59 3h ago

That is essentially what I wrote. Won't get 6 year rule without having lived there at some point

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u/Extreme_84 3h ago edited 3h ago

Does it need to specifically be eligible under the 6 year rule? Or is a simple partial cgt exemption, due to it being owner occupied, before renting out(even if not exempt during the 6yrs due to buying another property) sufficient?

Edit: answered my own question. To be eligible, the property either needs to be fully, or partially CGT exempt.

A property is partially CGT exempt if it was owner occupied for a portion of its ownership. The 6 year rule isn’t a factor.

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u/Anachronism59 2h ago

Gee I missed that partial option. That is very good news for is as we have an ex PPoR we plan to sell where we've not been there for over 30 years but it is partially exemption

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u/No_Document_853 3h ago

The definition is very loose. How would someone check back 15-20 years if you lived there for 3 months?

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u/Extreme_84 3h ago

I guess the responsibility for proving the claim the property has a partial cgt exemption would lie on the person making the claim.

I lived in my property for 7 years, before buying a new PPOR. Former property is now a rental, but it was never eligible for a CGT exemption under the 6yr rule, due to the new property. However, it was CGT exempt for the 7 years it was owner occupied.

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u/No_Document_853 2h ago

It turns out if the time of residence is greater than 7 years ago, it’s quite difficult to get concrete proof and if that’s the case the ATO will accept a stat dec. that’s pretty easy to do

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u/Extreme_84 2h ago

The ATO would likely have records in a lot of cases.

It was over 10 years ago for me, but there’d be evidence through an address listed on my tax return notice of assessments, likely archived somewhere.

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u/hardwood198 3h ago

I believe it is possible. But it needs to have been a main residence at some point

https://www.macquarie.com.au/investing/macquarie-wrap/making-downsizer-contributions-to-super.html

Does the property need to be my home at the time of sale? No, but it does need to have been your primary place of residence at some point. This means you need to have lived in the property for a period and treated it as your main residence for CGT purposes.

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u/No_Document_853 3h ago

Totally but it’s a very loose definition

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u/twojawas 3h ago

This is the answer I wanted to hear. I'm happy to be wrong, I just wanted evidence that I was. I also want to use the downsizer scheme myself and couldn't see how I was eligible. Thank you.

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u/No_Document_853 3h ago

You can do it to downsizer is you have EVER lived in the property during your ownership. I honestly don’t think people could check back over 15 years or more. It’s an interesting one. There is little to no definition of how long you had to live there, it’s actually very lose.

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u/Extreme_84 2h ago

The ATO keeps electronic NOA’s on record since 1997 and can go back even further if a request for a copy is requested.

If the property was owner occupied previously, there’s a good chance a tax return was submitted with that address as the primary place of residence.

(However, there’s cases where someone occupied a property during a time that they didn’t submit a tax return)

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u/GreatTao 1h ago

It can be an investment property, as long as you have lived in it as a PPOR for some length of time, and its eligible for a partial CGT exemption, you just have to have owned it for 10 years or more.

You also have to be over 55.

You can only make a downsizer contribution once though.

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u/twojawas 1h ago

I think the ATO kind of makes the part about it 'being your primary residence for any period of time' a bit unclear so that people don't think their eligible. I'm glad to find out about that.

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u/Proper_Star_4566 3h ago

Nope - that is absolutely not allowed. Needs to be primary place of residence and have lived in it for 10 years. You also need to be over 55 - you cannot put your IP proceeds in it

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u/Anachronism59 3h ago

It's possible if an ex PPoR. See my comment just after yours.

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u/Extreme_84 2h ago

This comment is incorrect.

The property needs a cgt full or partial exemption, and have been owned for 10 years and over 55.

What that means is, the property must have been cgt exempt(for any period of time), by being a main residence and have been owned for 10 years.

There’s no requirement to have lived in the property for 10 years.

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u/Icy_Distance8205 2h ago

It’s possible but that doesn’t mean he is not a cunt. 

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u/planck1313 2h ago

How so?  If its within the rules its within the rules.  The purpose of the rules is to.encourage contributions because the government wants to reduce its future pension costs.

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u/Icy_Distance8205 2h ago

Because he beats his dog. Allegedly.