Questions have been raised around the source of the $1 billion contributed into superannuation through downsizer contributions and how much has come from the sale of a primary residential home or from other sources seeking to take advantage of a lower tax rate.
Addressing attendees at the Institute of Public Accountants National Congress in Adelaide last week, SuperConcepts SMSF technical services executive manager Mark Ellem said the size of the funds channelled through the downsizer contribution scheme was unexpected, but it seemed unlikely funds were directed into superannuation from retirees receiving an age pension.
“We thought downsizer contribution would go the way of child contributions, that is, with great fanfare but not actually used that much, but to use a phrase from election night this year: ‘How good is downsizer?’” Ellem said.
Pointing to figures from the ATO, he highlighted that more than $1 billion had been contributed to superannuation under the scheme and the funds had come from 4246 individuals with an average contribution of $235,000.
“We all thought downsizer contributions would not be used because what it does is takes money out of an asset-test-exempt asset – the family home – and puts it into an asset-tested asset – superannuation – so who would do that?” he said.
“It would be interesting to analyse the data of those 4246 individuals and consider how many are getting the age pension, which is probably zero.”
If that was the case, downsizer contributions were likely used to shelter capital in a concessionally taxed structure, to get money into superannuation to start a pension or transfer balance caps had been reached to contribute funds at a 15 per cent tax rate, he said.
He also pointed out any sale of a residential property to create a downsizer contribution did not require someone to actually buy a smaller property, despite the name of the program.
“You don’t have to downsize or buy another smaller property, but can still the use downsizer contribution. A couple who sold a home may have $600,000 in a term deposit and if those funds mature in the 90-day contribution window after the sale of their property, they could use those funds to contribute,” he noted.
“It is also possible to use the downsizer contribution as a withdrawal and recontribution strategy – if over 65 with full access to super, pull money out and contribute it back in the 90-day window and call it a [downsizer contribution].
“It would be interesting to analyse the circumstances of how the $1 billion was funded. Was it from the proceeds of the sale of homes, from other assets that were liquidated, or cash, or withdrawals that were taken out and that went back in, so from left pocket to right pocket?”