Contributions, Downsizer, SMSF, Strategy

Downsizer delay may be wiser

Downsizer contributions

Trustees should consider saving their ability to use the downsizer contribution and utilise their non-concessional contribution caps first, given recent rule changes.

SMSF trustees should reconsider the use of the downsizer provisions when contributing to their fund and explore alternative strategies that leverage their non-concessional caps instead, according to a technical expert.

BT Financial Group technical consultant Matt Manning noted recent changes in the work-test exemption and the minimum age for downsizer contributions allow trustees and fund members to rethink the approach of making a downsizer contribution when selling their main home.

“It’s interesting because previously the downsizer age was set at age 65, then it became 60 and now in the new financial year it’s 55. Before in the situation [when] a client qualified for the downsizer, and they wanted to put money in their super, [they would] use a downsizer without considering any other types of contributions,” Manning told attendees at a BT Academy contribution strategies webinar today.

“However with the [downsizer age] reduction in mind and the ability to make non-concessional contributions becoming much easier, I’d argue that a better option would be to make non-concessional contributions [with the proceeds of a house sale] rather than use a downsizer strategy.

Manning illustrated his point with a case study of a couple, both aged 59, who recently sold their primary residence and were eligible to make downsizer contributions based on the current provisions.

“With those factors in mind and changes to the work-test, the couple are 59 years old and a downsizer is a one-off opportunity. You can’t make any more in the future, it doesn’t work as a contribution cap,” he noted.

“They have plenty of time to get whatever they want into super and they’ve got until 74 now to get their non-concessional contributions in and they’ve also got plenty of years left to make concessional contributions. And of course the downsizer is not subject to the non-concessional criteria.

“So I’d suggest that there’s no real opportunity cost in using non-concessional caps for a house sale and keeping the ability to use a downsizer when they sell their new main residence in the future,” he explained.

“Then they can keep their powder dry and use their downsizer in a year when they are a little older or they might fail the total super balance criteria.”

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