Can my second wife make a downsizer contribution?

The home was an existing property held in the client’s name, purchased during a previous relationship. Would his current wife also be eligible to make a downsizer contribution to super, although she isn’t on the title of the property?

A downsizer contribution is a relatively unique way to contribute the sale proceeds of your former home to superannuation, which can be a tax-effective way to assist in building your retirement savings. Fortunately, the scenario that you have described is accounted for within the tax laws relating to downsizer contributions, subject to meeting the eligibility requirements.

The main consideration as to whether an individual meets the eligibility requirements, in particular, is whether they have lived in the property as their main residence. So, if your client and his spouse are both looking to make a downsizer contribution, the spouse may be eligible to do so if they have lived in the property with the client.

What are downsizer contributions?

Interestingly, when introduced from 1 July 2018, the policy came about as a housing measure to encourage the sale of dwellings, using superannuation contributions as an incentive to do so.

There are a number of conditions that must be satisfied for a contribution to be made under this measure including, but not limited to: the age of the contributing individual (55 years or older, from 1 January 2023); period of time the property was held (10 years or more); the proceeds of sale partially or wholly qualifying for the main residence capital gains tax (CGT) exemption; the home being in Australia; the contribution being made within 90 days of receiving the proceeds of sale; and you not having previously made use of the measure.

There are also limits on the amount each eligible spouse can contribute, being the lesser of either $300,000, or the proceeds of sale from the property.

Can you make a contribution even if your name is not on the title?

Your client raised an interesting question around what happens if his spouse isn’t on the title of the property – are they eligible to make a downsizer contribution?

Well, this isn’t an uncommon scenario for many reasons such as second relationships, asset protection strategies, or even where a property may have originally been inherited by a particular individual.

The income tax law (ITAA 1997 s.292.102) clearly states that a contribution can be considered a downsizer contribution where ‘you or your spouse’ held an interest in the property just before it was sold. This seems like a simple enough statement to answer your question; however, the requirements extend slightly beyond that! The eligibility tests apply to the individual making the contribution to super

Where a spouse not on title is contributing, the tests apply to that individual. So how can, for example, the main residence CGT exemption apply when they don’t own an interest in the dwelling?

Fortunately, this scenario is also accounted for within the legislation, and applies notionally.

If all the basic requirements are met, and the current spouse has lived in the dwelling as their main residence, they could be eligible to make a downsizer contribution to their superannuation.

Tim Howard is an advice technical and strategy consultant at BT.