TSB tax may create downsizer caution

TSB tax downsizer

The potential for downsizer contributions to bump up a SMSF member’s Total Superannuation Balance will need to be considered in light of the proposed earnings tax based on that figure.

SMSF trustees able to make downsizer contributions under the new lower thresholds that took effect from the start of this year may want to reconsider the impact on their total superannuation balance (TSB) in light of proposals for a new tax on the earnings on balances over $3 million, according to an SMSF legal expert.

Cooper Grace Ward senior associate Steven Jell said the decrease in the eligibility age to make a downsizer contribution to 55 from 1 January 2023 raises the question of whether an SMSF member should take up that option.

“Downsizer contributions are now available to more people provided they satisfy the requirements, which is having owned the asset for 10 years or more, it was the main residence, the contribution is made within 90 days of the settlement and it is the greater of the proceeds of sale or $300,000,” Jell said during at the law firm’s Annual Adviser Conference last week.

“The takeaway point from these changes that is worth focusing on is just because we can do it, should we actually do it particularly in light of the new superannuation earnings tax, which is tied to a $3 million TSB.”

He noted that while a member’s TSB was not considered when making a downsizer contribution, it would be a key factor in determining whether a member paid the proposed earnings tax.

“Should we be considering that tax because these are large contributions that we can make and if we get the contributions in the fund, at what stage can we get them out? “ he said.

“Are we going to actually put people in a different situation by using downsizer contributions when and if these new earning tax changes come through?”

Cooper Grace Ward partner Clinton Jackson added the timing issue would be critical for some fund members who could miss out on making a downsizer contribution.

“Some people will never be in a position to make this contribution if they don’t do it when they sell their current main residence,” Jackson said.

“They may not own the next one for 10 years and be eligible at a later date so it’s a delicate balancing act, but with the potential $3 million cap it becomes an issue we need to consider really carefully.”

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