Downsizer valuations absolute

Downsizer valuation

The valuation rules applied to downsizer contributions are very strict and not consistent with other tax provisions regarding property transactions.

A senior executive of a large chartered accounting firm has alerted practitioners to the absolute nature of the downsizer contribution provisions with regard to the valuation of the property that has been sold.

“For CGT (capital gains tax) reasons if you’re say selling a property to your daughter or a related party and the asset is being sold for less than the market value, you would have to use market substitution rules to allow the transaction to reflect the proper value. With a downsizer contribution the market substitution rule doesn’t apply,” KPMG Enterprise head of SMSF and estate planning Julie Dolan told delegates at the recent SMSF Professionals Day 2023 co-hosted by selfmanagedsuper and Accurium.

“For a downsizer contribution the amount able to be used is based upon what is received upon the sale of the property. So if you receive nothing based on the love for your daughter in transferring a property across to her, then they’re the proceeds available to make a downsizer contribution, so you need to be aware of that.”

Dolan also took the opportunity to point out the ATO is very strict in its interpretation and application of the downsizer contribution rules and the chances of having the regulator use its discretion to relax some of the provisions are poor.

To this end, she noted it is very difficult to receive an extension from the ATO in order to allow a fund member to reach the age of 55 that will trigger their eligibility to make a downsizer contribution.

She acknowledged other mitigating factors would also need to be present for an application to have the set timeline extended.

In a similar fashion, the chances of the ATO allowing the contribution to be made in excess of 90 days after receiving the proceeds of the property sale would be very remote.

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