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Relationship changes affect downsizer eligibility

A couple look at a map.

Changes in relationship status can change how couples make downsizer contributions.

Financial advisers and accountants need to be across how a change in home ownership due to relationship changes can affect how couples make downsizer contributions, an industry expert has said.

Smarter SMSF chief executive and co-founder Aaron Dunn told the SMSF Day 2018 seminar in Sydney earlier this week that under the downsizer contribution scheme introduced in the 2017 federal budget, marital breakdown or the death of a spouse can have an impact on how the remaining member makes their contribution, particularly if they remarry.

For example, a woman who was married and the couple’s property was in her husband’s name for 30 years, and he died three years ago and the ownership transferred to the wife, can sell the property as she had owned it with her husband for a combined period of more than 10 years, Dunn said.

“Now, what is interesting out of this is if she had remarried a year and a half later, for example, then not only would she be able to make a contribution, but her new spouse would be able to make a contribution as well,” he said.

“The test is that the dwelling must have been owned for 10 years or more just prior to its disposal and it looks at the ability for that individual and their spouse at that time to be able to make a contribution. The rules allow for a contribution. That’s all it talks about.”

He also said if there is a situation where the property does not qualify for a downsizer contribution and the tax commissioner becomes aware of this, the commissioner will notify the fund of this fact.

If upon reassessment the adviser finds the member is eligible to contribute based on their total super balance, age of the individual and working status, they will need to go back and complete the relevant re-reporting, he noted.

“Where it is not able to be accepted, then our SIS (Superannuation Industry (Supervision)) regulation says it must simply be returned,” he said.

“So again it’s not eligible or subject to excess contributions tax rules. It is simply a by-product of saying the trust deed should not have accepted this in the first instance.”

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