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Downsizer requires macro view

downsizer strategy

SMSF trustees need to consider the long-term strategy benefits of making downsizer contributions and not be swayed by the current investment climate.

SMSF trustees need to consider the long-term strategy benefits of making downsizer contributions and not allow their decision-making to be unduly influenced by the current investment climate, a specialist practitioner has said.

“One of the comments I’ve heard in general when talking about [downsizer contributions] is why would you look at putting extra capital into super now when investment returns are generally a lot lower [than normal] and therefore there is no real benefit by having those earnings attributed to a 15 per cent tax environment versus a marginal tax environment,” SuperGuardian education manager Tim Miller revealed during his firm’s recent SMSF strategy seminar.

“Well [it really] comes back to the whole concept of now doesn’t represent always.”

Miller pointed out an added factor in the decision of whether to make a downsizer contribution or not is the time frame by which SMSF trustees are constrained.

“The capacity to make the downsizer contribution is limited to 90 days within the settlement period so missing out on the opportunity now, where there are lower earnings taxed at a lower tax rate, might not be that relevant at this moment, but later on, as investment returns do start to increase, then having it in that lower tax environment may be beneficial,” he noted.

“So we have to always look ahead as much as we look in current terms with regards to whether a strategy is worthwhile or not.”

With regard to superannuation contributions in general, he said it was important to know the strategies that will be affected by the introduction of indexation and those that will not, noting the ability to make downsizer contributions is not influenced by a person’s total super balance.

He cited the ability to make catch-up contributions as a result of a person’s unused concessional contributions caps as another strategy unaffected by the soon-to-be-applied indexation measures.

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