Don’t waste downsizer ‘last resort’

downsizer last resort

Downsizer contributions are a last resort move to get large sums into superannuation so trustees should consider waiting rather than acting on pending changes.

SMSF trustees able to make a downsizer contribution under the recently reduced age limits should be careful they do not waste this ‘last resort’ opportunity and consider making non-concessional contributions (NCC) instead, according to a technical specialist.

Smarter SMSF chief executive Aaron Dunn said the reduction in the eligibility age to make downsizer contributions from 60 to 55, which recently passed through parliament and was expected to take effect from 1 January 2023, opened up new retirement planning scenarios, including not using the downsizer rules until later in life.

“[The change] begs the question that as people can be younger with this qualifying age, are we going to see contributions made that are tagged as a downsizer contribution?” Dunn said during an online briefing today.

“We have a 10-year timeframe in which to be able to qualify to be able to make a downsizer contribution, and since you will probably only get one crack at it, maybe the downsizer contribution would be better as a NCC.

“This would allow for [a] downsizer [contribution] to be made at a future point in time where that 10-year qualification period has been met again on the home that you have now downsized into.

“There may be a transition down from a larger home now, but it doesn’t mean you have to use the downsizer rules at this point when it may be more beneficial in the future.

“The reason I say that is because the downsizer contribution is really a last resort contribution that is not subject to age or to the total superannuation balance.

“If you make a downsizer contribution now and it pushes you above the general transfer balance cap, the ability to make NCCs after that is gone because your balance is above the general transfer balance cap.

“However, if that amount goes in as a NCC and at a future point in time you qualify again for a downsizer contribution, the general transfer balance cap does not apply and it doesn’t matter whether that person is 85 years of age.

“That is why I go back to that last resort contribution concept and getting all of these things in line will be critical to the successful implementation of this strategy.”

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