Heed restrictions on downsizer contributions

Downsizer contributions can be a valuable strategy for members who are retired or have reached their contributions caps to tip further funds into super, but advisers need to be aware of the restrictions around which property sales are eligible, according to a technical services expert.

         

 

Downsizer contributions can be a valuable strategy for members who are retired or have reached their contributions caps to tip further funds into super, but advisers need to be aware of the restrictions around which property sales are eligible, according to a technical services expert.

Fitzpatricks head of strategic advice Colin Lewis told SMSF Adviser the contributions were an ideal strategy for those who were older, no longer met the work test and couldn’t contribute any more to super through other means, as they did not count as a non-concessional contribution.

“It’s great for people who might not be able to contribute to super because they are aged 75 or more, or no longer working, or perhaps they’ve got too much in super already,” he said.

Mr Lewis said some of the common queries from advisers about the contributions were around eligibility and specifically the type of property being sold, as it made a difference to whether the contribution would be accepted.

“You get some weird and wonderful arrangements where people think they can do it — for example, someone might sell an investment property and think they can contribute, or they might subdivide a parcel of land into six but in that case they haven’t actually sold a house,” he said.

Mr Lewis clarified that downsizer contributions were only eligible if they were proceeds from a physical dwelling that was or had been a member’s main residence. 

However, beyond this there was no requirement for the member to be actually “downsizing” by moving to a smaller or lower-value home. 

“The ability to make a downsizer contribution from age 65 hinges on making the contribution within 90 days of settlement of a property that was owned for at least 10 years which qualified for the main residence exemption, so you could sell an investment property that was once your home and that would qualify,” he said.

“So, you don’t have to sell the last dwelling you’ve lived in to be able to qualify for it, but then again, you can’t just sell a straight-out investment property.”

Mr Lewis said he had also received queries about the effectiveness of the strategy for members that had already reached their transfer balance cap, but said contributing funds to accumulation stage accounts was still a tax-efficient option.

“People think if they’ve started an account-based pension and used their $1.6 million then why put more money in, but how else are they going to invest that money?” he said.

“If they are investing it outside and paying tax on their earnings, they are better off having it in accumulation phase even if they can’t get it into retirement phase.”

 

 

Sarah Kendell
30 August 2019
smsfadviser.com

 

More Articles

Why crypto treads an uncertain path through tax minefield

The taxation of digital assets used for lending and borrowing would benefit from clear-sighted...

Read full article

Wheat Production by Country

Check out the countries that produce the most...

Read full article

Labor tweaks stage 3 tax cuts to make room for ‘middle Australia’

Following years of mixed messaging, Labor has bowed to economic pressure and announced changes to its stage...

Read full article

Investment and economic outlook, January 2024

Region-by-region economic outlook and latest forecasts for investment returns. . What might shipping...

Read full article

Quarterly reporting regime means communication now paramount: expert

Communication between SMSF trustees, accountants and advisers is more crucial than ever with the quarterly...

Read full article

Four timeless principles for investing success

Investing success can mean different things to different people. Being clear on what success means for you is...

Read full article

Plan now to take advantage of 5-year carry forward rule: expert

This is the last year that the five-year catch-up contribution rules for concessional contributions can be...

Read full article

Super literacy low for cash-strapped

Financial literacy around superannuation is poor for many lower-income people, who still question why they...

Read full article

Sofie Korac is an Authorised Representative (No. 400164) of Prudentia Financial Planning Pty Ltd, AFSL 544118 and a member of the Association of Financial Advisers.

Financial Advice Sydney and the North Shore Office based in Gordon NSW

Financial Services Guide - Disclaimer & Privacy Policy

^