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 In Lifestyle

SMSF Downsizer contributions

In the 2017/18 federal budget, the Government announced policies connecting superannuation with property ownership for retirees. The policy has now been legislated and the ‘downsizer contribution’ provides a new opportunity for those over 65 to boost their retirement savings.

In the 2017/18 federal budget, the Government announced policies connecting superannuation with property ownership for retirees. The policy has now been legislated and the ‘downsizer contribution’ provides a new opportunity for those over 65 to boost their retirement savings.

We spoke to Gavin Coyners who is ​CPA qualified and holds a Bachelor of Business (Accounting) and is a ​Senior Advisor at The SMSF Club – ​a membership program integrating an education program with accounting, compliance, and investment support helping members be informed, responsible and compliant trustees of their SMSF (self managed super fund). Here’s what he had to say about the new legislation.

Under the downsizer contribution rules, members aged 65 and older will be able to contribute proceeds from the sale of their home into super. Each member can contribute up to $300,000 regardless of their age, work status or total superannuation balance. The contribution isn’t considered a concessional or non-concessional contribution but rather its own class.

The main eligibility criteria to make a downsizer contribution are:

– The member must be age 65 or older,

– The contribution can not exceed the downsizer contribution cap (currently $300,000 per member),

– The 10-year ownership rule must be met,

– The contribution must be equal to all, or part of, the capital proceeds from the sale of an interest in a dwelling held by the member or their spouse, and

– The contributor must qualify for a full or partial CGT (Capital Gains Tax) main residence exemption on the sale of the property (Assets owned pre-20 September 1985 may be CGT exempt without needing to meet the requirements for main residences exemption).

Downsizer cap and limit

The contribution for an individual can not exceed $300,000. However, each member of a couple (if eligible) can make contributions of up to $300,000 from the proceeds of the same property. This may allow up to $600,000 in downsizer contributions to be made by a couple when their home is sold.

Once a member has made a downsizer contribution in relation to one contract of sale, they cannot make any future downsizer contributions in relation to future contracts of sale, regardless of whether they utilised the full cap when they made their downsizer contribution.

Under the downsizer contribution rules, members aged 65 and older will be able to contribute proceeds from the sale of their home into super.

The spouse’s property

A downsizers contribution can still be made where the disposed-of dwelling was owned by the member’s spouse, but not by the member. In this case the member must have been able to qualify for a full or partial CGT main residence exemption on the property ​had​ they owned part of it themselves. I.e. they must not have another property they are claiming as their main residence.

The 10-year ownership rule

At all times in the 10 years immediately before the disposal of the dwelling, the member, their spouse or ex-spouse must have held an interest in the dwelling or the land on which the dwelling is located.

In a case where the spouse’s estate disposed of their interest in a dwelling, it is treated as though the spouse owned it up until the disposal. This applies where the member was the deceased’s spouse at the time the spouse died.

Elements to consider when making a downsizer contribution

– The contribution must be made within 90 days of the change in ownership occurring, subject to the ATO commissioner’s discretion to extend this period.

– Centrelink benefits may be impacted because a member’s home is exempt from assessment for Centrelink income and assets tests, however amounts contributed to super as a downsizer contribution are not.

– A downsizer contribution counts towards a member’s transfer cap balance (currently $1.6 million). If a member is approaching the transfer cap balance limit they may not be able to transfer all of the downsizer contribution to pension phase in super. Any earnings on the amount retained in accumulation phase will be taxed at 15%. This may still compare favourably to the member’s personal tax rate, dependant on other income outside of super.

Click here to read the ​Downsizer Contributions Bill​ (Reducing Pressure on Housing Affordability Measures No.1 Bill 2017) and ​Explanatory Memorandum​.

The downsizer contribution rules offer new opportunities for people over the age of 65 to get money into superannuation, however like all superannuation rules they are not entirely straight forward, and it is crucial to understand how a contribution will impact your personal situation. For more information on downsizer contributions please contact your SMSF Club Adviser.

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