The following integrity measures have been implemented in relation to downsizer contributions, to ensure that the provisions operate as intended when the initiative was first introduced.  The changes were made to section 292-102 of the ITAA 1997.

Capital proceeds from sale of the home

The change ensures that in the calculation of the maximum amount of downsizer contributions (subject to the cap amount of $300,000), the value of the capital proceeds from the home is based on the actual proceeds received from the sale.  The market substitution rule (section 116-30 ITAA 1997) cannot be used to increase the amount of the capital proceeds from the disposal and thus to inflate the amount of the downsizer contribution (“DC”).

This measure applies to contract for the disposal of an ownership interest in a dwelling that is entered into on or after 22 June 2020 (date of Assent of the amendment legislation).

Spouse has previously made downsizer contribution in relation to another property

The general rule is that a person can only make DC from the sale of one home and has not previously made similar contribution from the sale of another home.  Both spouses can make DC from the disposal of the same property, subject to their respective DC cap and the contributions together cannot exceed the capital proceeds from the disposal of the property.

It is however possible that at the time of the disposal of a person’s home from which DC will be made, the person’s spouse has already made DC in relation to the disposal of another property. According to the EM of the amendment legislation, there is a technical issue with the way in which the maximum DC will be calculated.

The amendment ensures that the maximum amount of DC a person can make is only reduced by their spouse’s DC if the spouse’s contributions were made in respect of the disposal of interests in the same property.  It is not affected if the spouse has claimed DC from another property.  Any unused portion of the DC cap cannot be transferred to the other spouse.

This measure applies in relation to disposal of an ownership interest in a dwelling if the contract for the disposal is entered into on or after 1 July 2018.

Pre-CGT asset held in name of spouse

An amendment was made to ensure that a person can make a DC in respect of the proceeds from a property held by their spouse, where the property is a pre-CGT asset that would have been subject to the main residence exemption if it had been acquired on or after 20 September 1985.

This measure applies in relation to disposal of an ownership interest in a dwelling if the contract for the disposal is entered into on or after 1 July 2018.

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