Downsizer consequences need noting

downsizer SMSF trustees

A range of issues need consideration by trustees if they qualify to make downsizer contributions once the reduction in the qualifying age is implemented.

A superannuation professional has alerted SMSF trustees and their advisers to certain important elements to consider if looking to consider making downsizer contributions in light of the federal government’s budget measure to reduce the qualification age from 60 to 55.

Tax and Super head of superannuation Natasha Panagis noted some fundamental principles must be taken into account before this type of contribution can be made.

“Super funds don’t have to accept downsizer contributions so it’s best to check with your fund if it does. This is particularly relevant for SMSFs because a review might be required of the trust deed to ensure that the fund is not precluded from accepting any types of contributions such as downsizer contributions,” Panagis told attendees of a Federal Budget Update she co-hosted online last week.

Further, she pointed out social security implications also needed to be thought through before a downsizer contribution is made.

“The other thing to note for clients of yours who might be in receipt of Centrelink or DVA (Department of Veterans’ Affairs) benefits is that these downsizer contributions that are made are going to count towards the assets test in the income test, which obviously determines [an individual’s] eligibility for the aged pension and other benefits as well,” she said.

“So really what downsizer [contributions] are doing is moving money out of an exempt asset, which is the family home, and moving them into the non-exempt and assessable environment of the super fund.”

According to Panagis, there is an additional effect a downsizer contribution has on an individual’s circumstances with regard to aged care.

“Downsizer contributions will increase a person’s means and therefore can increase their aged-care fees and home-care fees as well, particularly the means-tested fee or income-tested fee that a person may be required to pay.”

The legislation reducing the downsizer qualification age from 60 to 55 was passed into the Senate in September and was included as a measure in the new Labor government’s budget handed down last week.

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