An SMSF specialist has alerted advisers and their clients to an issue regarding the preservation of superannuation benefits that has resulted from the age extension applied to downsizer contributions as announced in the 2021 federal budget.
On Tuesday night, Treasurer Josh Frydenberg declared the minimum age individuals had to reach before being eligible to make downsizer contributions is being lowered from 65 to 60 from 1 July 2022.
“Beware of preservation applying to [downsizer contributions]. Currently to make a downsizer [contribution] you have to be 65 years of age. Of course, [turning] age 65 is a condition of release with no restrictions, so once you turn 65 you have full access to your preserved benefits in super,” Accurium head of education Mark Ellem told delegates during a budget webinar held today.
“But if you are making a downsizer contribution and you’re below age 65, then that contribution is prima facie subject to the preservation rules.
“[This means] in order to access it, as a lump sum or to commence a retirement-phase pension, you have to meet a relevant condition of release.”
Ellem also pointed out the treatment of downsizer contributions made in error has changed due to the government’s intention to eliminate the need for individuals under the age of 74 to pass a work test before they can make non-concessional contributions into super.
As a result of this measure, from 1 July 2022 onwards if an individual older than 66 years of age makes a downsizer contribution when not eligible to do so, the SMSF can retain the money, he said.
“Because the work test is being removed, the trustee can still accept the contribution and it will then count towards a person’s standard non-concessional contributions cap,” he noted.
“Now, depending on what non-concessional cap space that individual has will determine whether that contribution is excessive or not.”
