Downsizer changes create NCC clash

downsizer non-concessional contributions

SMSF members may choose to postpone downsizer contributions to a later time if they impact NCCs in the short term.

SMSF members looking to use downsizer contributions may find they clash with non-concessional contributions (NCC), with a technical expert suggesting those who can hold off on making downsizer contributions can make them later in life.

Heffron managing director Meg Heffron said the strategy of making NCCs ahead of downsizer contributions as the latter are not dependent on the size of a superannuation fund balance may be less suitable with the extended downsizer timeframes introduced in this year’s budget.

“That used to work because most people stopped making large NCCs when they got to the time when downsizer kicked in,” Heffron said.

“Now we’ve got this really long timeframe and bringing the downsizer age down to 60 just makes that timeframe even longer.”

She said the possibility for a clash under these timeframes can result where a fund member is eligible to make an NCC and downsizer contribution in the same financial year and the latter is triggered by the need to make the contribution within 90 days of the sale of a primary residence.

The need to meet the 90-day deadline will lead to a fund member having a larger total super balance, which prevents the NCC, but could be avoided by delaying the downsizer contribution to the next financial year or to a later period in life, she added.

She suggested a client who is in their early 60s might try to delay settlement into the next financial year, allowing them to make up to $330,000 of bring-forward NCCs in the current year and the downsizer contribution in the next year.

“That would be okay if you could control all of that, but maybe they can’t delay the settlement, but if they are young enough, they might buy a new house, own that for 10 years and do downsizer last,” she said.

“Even though they have this opportunity to do a downsizer contribution, they might say: ‘I am not going to take it.’

“We might find that despite the fact that the downsizer age is getting younger, the fact that NCCs are now available at much older ages might mean we see exactly the opposite of what we expect and downsizer contributions will get later rather than earlier.”

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