A sector specialist has reminded practitioners an SMSF member must receive proceeds from the sale of a residence before they are able to take advantage of the downsizer contribution provisions.
“There actually have to be proceeds that are received [before a downsizer contribution can be made]. From a capital gains point of view, we have market substitution rules that dictate you’ve received a certain amount [from the sale of an asset, but they] do not flow through to the contributions. You actually need to receive proceeds,” Accurium senior SMSF educator Anthony Cullen told attendees of a recent technical webinar he hosted.
Cullen cited some situations where acknowledging this legal parameter will allow SMSF trustees to avoid any related compliance issues.
“That might come into play where you might be looking to gift your house to your children, for example. [In this scenario] you might want to downsize, but your children are looking for a house so you let them move into [your existing residence]. But they don’t pay anything for [the property],” he explained.
“The amount you could contribute [to the SMSF] under downsizer is going to be zero because you haven’t actually received any [money from the transfer of the property].”
He pointed out SMSF members looking to make a downsizer contribution must also pay particular attention to the amount they can channel into their fund up to the $300,000 limit.
“The other thing in terms of the proceeds, we’re looking at the gross proceeds,” he noted.
“So factoring in selling costs or factoring in [the fact] you might have a mortgage on the house when you settle and you [use the services of] a conveyancer or a lawyer so much that [these expenses are taken off] the proceeds of the lender and you and you only get the net amount [from the sale], does not impact on the fact that you sold your property for $1 million, or whatever the figure is, [for downsizer contribution purposes].”
