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Residential Property, Superannuation

Bill amendments make downsizer contributions clearer

Downsizer contributions amendments

Anomalies associated with the downsizer contributions rules may be addressed in treasury law amendments that have been the subject of industry consultation.

Proposed legislative amendments currently before treasury are likely to clarify aspects of the downsizer contributions provisions that have not been previously addressed specifically, a specialist SMSF document provider has said.

Smarter SMSF director Aaron Dunn said the Treasury Laws Amendment (Measures for a later sitting) Bill 2019: miscellaneous amendments exposure draft, that ended its associated consultation period last week, addressed a number of key issues around the taxing and handling of downsizer contribution funds.

Dunn pointed out the first anomaly the proposed bill is looking to address is in relation to the capital gains tax (CGT) exemption status of a residence purchased before September 1985.

He said the amendment stipulates an individual will be able to make a downsizer contribution from the sale proceeds of a property held by their spouse where the asset is pre-CGT which, if purchased after 1 September 1985, would have been eligible for the main residence CGT exemption.

“[The second issue] is about how the maximum [downsizer] contribution is calculated [and deals with the situation] where an individual’s spouse has already made a downsizer contribution in relation to an interest in the disposal of another property,” Dunn explained.

“So specifically here such contributions are treated in the same way as other disposals from the same property and as such reduce the maximum amount of contributions that an individual can ultimately make,” he added.

Dunn noted the third aspect of the downsizer provisions the proposed legislation will amend involves the application of the market valuation substitution rule, outlined in section 116.30 of the Income Tax Assessment Act 1997, with regard to the sale of a residence.

The new laws will ensure the market valuation substitution rule cannot be applied to the sale of a dwelling so as to increase the proceeds of the property sold which in turn could increase the size of the downsizer contribution able to be made.

“[This rule will apply] if the contract for disposal is entered into on or after the date this amendment ultimate receives royal assent,” Dunn said.

The federal government recently revealed downsizer contributions have so far totalled $1 billion but some confusion over issues such as age eligibility to use this provision have emerged.

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