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ATO, Superannuation

Downsizer errors face penalties

ineligible downsizer contributions

Downsizer contributions made by SMSF members who are ineligible to make them could attract an ATO penalty, a technical expert has said.

A technical expert has warned advisers that their clients can incur an ATO penalty in some circumstances if they make downsizer contributions when they are ineligible to do so.

Speaking at The Tax Institute’s Tax Summit in Sydney yesterday, Accurium head of technical services Melanie Dunn told delegates: “The ATO may impose a penalty on the member if they had declared on the approved form that they were eligible to make the downsizer contribution when they were actually not eligible.”

Dunn also warned practitioners the regulator will not exercise any leniency over meeting the downsizer contribution time limit, that is, having to make the contribution to the SMSF within 90 days of sale settlement, if an extension is sought for the wrong reasons.

“If there are delays from being able to make this contribution within that 90-day time frame that is required, there are opportunities to request an extension from the tax office. So you can request a long period for making this [type] of contribution, although the ATO has highlighted it won’t grant this exemption so that the member can meet that 65-year-old age condition,” she said.

“But If there is something else going on that has delayed [the contribution, the ATO] does request you notify it within that 90-day time frame to get that extension, however, it will consider situations outside [those original] 90 days if there is death or ill health or something like that involved.”

She pointed out there is a procedure to be followed if a legitimate error has occurred in making downsizer contributions for members ineligible to do so.

“When the ATO identifies this, it is going to notify the member and the fund, and the fund needs to access whether the trustees could have received that contribution as a personal contribution,” she said.

“If they couldn’t assess it against the relevant cap, and if they were not eligible to receive a [downsizer] contribution, it needs to be paid out of the fund to the member.”

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