The timing of the downsizer contribution in superannuation is vital, particularly if the SMSF client qualifies for non-concessional contributions (NCC), according to a technical expert.
SuperConcepts SMSF technical and private wealth executive manager Graeme Colley said while this does not affect those wanting to make concessional contributions as anyone who meets a work test after the age of 65 will qualify if they want to claim that, those wanting to make an NCC should beware of the traps.
Addressing a Self-managed Independent Super Funds Association webinar today, Colley cited a case study of a 66-year-old man with $1.4 million in superannuation who has sold his residence for $800,000, with the property settlement occurring on 1 July 2019.
“For him he really needs to think about the timing here because having $1.4 million in superannuation will allow him to put in a NCC to super in the next financial year if he wants to do that and he makes the work test,” Colley said.
Despite the availability of a 90-day settlement date, he said the client should consider making a $100,000 NCC before he receives the funds from the downsizer contribution.
“If he does it the other way around, he may miss out in the next financial year because $300,000 plus the $1.4 million he’s already got in super being his total super balance will push the balance as at 30 June over $1.6 million and will stop any non-concessional contribution going in the next financial year,” he said.
He pointed out a $100,000 contribution in the 2019 financial year would push the balance to $1.5 million, well below the transfer balance cap.
The trustee can then make a non-concessional contribution of $100,000 in 2020, followed by $300,000 from the sale proceeds of his property in 2020, which puts him at $1.9 million during the 2020 financial year, he said.
The increase would be supported by NCCs and the downsizer contributions.
“So it’s certainly of value to work out the timing if you or your client satisfies the downsizer contribution and they want to put NCCs into the superannuation fund,” Colley said.