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Contributions, Property

Time to alert clients about downsizer changes

downsizer contribution

Clients approaching their 60th birthday should be alerted to pending changes to downsizer contributions and the need to reconsider the timing of any property transactions.

SMSF advisers with clients approaching their 60th birthday in the coming months should alert them to hold off on selling their home until at least April 2022 so they can benefit from changes to downsizer contribution rules, according to an SMSF legal expert.

DBA special counsel Bryce Figot said the changes to downsizer contribution rules, which will reduce the age at which individuals can make contributions into superannuation using the proceeds of selling their home from 65 to 60, include a 90-day contribution window that will apply for the first time for people aged 60 from early April next year.

Figot said SMSF clients may not believe the sale of a family home was relevant to their fund and may not inform their adviser of the transaction.

“This could be a good time to be proactive and identify people between 60 and 65 and tell them to hold on because in less than eight months’ time they will be eligible for downsizer contributions, but if they sell their house too soon, they won’t be able to put any of the proceeds into super,” he said.

In making these calls, he said advisers should be aware of the dates surrounding eligibility to make a contribution and when the legislation reducing the age limit commences, and their interaction with the 90-day contribution rule.

“Currently you must be at least 65 at the date of contribution and that will come down to 60 from 1 July 2022. There is also a 90-day period from which to contribute the proceeds after receiving them,” he said.

“By my calculations, 2 April 2022 plus 90 days gets you to 1 July 2022, so if the settlement is on 1 April 2022, the contribution can occur on 1 July.”

If a client mistimes a sale for the purposes of downsizer contributions, they could seek to apply to the taxation commissioner for their discretion to allow a contribution after 1 July 2022, which was also outside the 90-day contribution period, he noted.

“The ATO on their website gives some guidance which states if someone has overlooked the 90-day time frame, an extension of time may be granted due to, but not limited to, moving house, which is very interesting because you are always going to be moving house with downsizing contributions,” he said.

“I do emphasise this is an extension of time to make a contribution and not an extension of time to allow you to meet the age requirement.”

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