The measures contained in this year’s federal budget regarding a superannuation contribution will make the timing of when to use the downsizer provisions more important, a technical expert has said.
As announced in the 2021/22 budget, from 1 July 2022, any individual aged 60 or over will be able to make a downsizer contribution. In addition, the government decreed from the same date superannuants will be able take advantage of the non-concessional contributions bring-forward provisions as long as they are 74 years of age or younger.
However, a person’s ability to use the non-concessional contributions bring-forward provisions will continue to be restricted by their total super balance as at the prior 30 June. As of 1 July 2021, an individual will only be able to use the bring-forward measure if their total super balance is $1.59 million or under.
Speaking at the Self-managed Independent Superannuation Funds Association SMSF Professionals Half Day Seminar, Heffron managing director Meg Heffron said this will mean SMSF members who want to use the non-concessional contribution bring-forward provision, as well as make a downsizer contribution at some point, will have to time their strategy correctly.
To this end, those individuals have to ensure their downsizer contribution does not inadvertently push their total super balance past $1.59 million so as to disqualify them from using the non-concessional contribution bring-forward rules, Heffron said.
With this timing sensitivity being so important, and given people have a window of 90 days to make the contribution after the property sale, she wondered whether it would ultimately affect the overall asset strategy of SMSF clients.
“If [a person] settles in May 2024, he’d actually have a choice. He could make his downsizer contribution immediately, which would affect his 30 June 2024 balance and [potentially] ruin his opportunity to [use the] non-concessional contribution [bring forward], or he could leave it just a little bit closer to the 90-day deadline and put that downsizer [contribution] in the following year,” she said.
“I wonder if we’re going to have a whole lot of our wealthy clients deliberately choosing to settle in May because it gives them that 90-day window to put the downsizer [contribution] in the following year.”