How Will Downsizer Contributions Work for SMSFs?

As of July 1, 2018, downsizer contributions for super funds will come into effect.

The following steps are required for an SMSF member to be eligible:

Step 1: Eligibility

  1. The member is part of a complying super fund and is 65 years of age or older;
  2. the property is deemed the main residence and the monetary amount is the equivalent to part or all of the received capital proceeds;
  3. before the sale, there was an interest in the main property during a 10-year period by either the fund holder, their spouse, a former spouse or a trustee to the estate of a deceased spouse. As well as;
  4. there having been no previous downsizer contributions made from another property.

Step 2: Contributions

No more than $300,000 can be contributed to a super fund from the sale of the main property. Such contributions are often impeded by many SMSF deeds and it is probable that a deed update will be required.

Step 3: Verification and Reporting

The ATO must be informed of any downsizer contributions. Should investigation of the contribution show it doesn’t qualify, it will either be refunded back to the member or allotted as a non-concessional contribution.

Tips and traps for SMSFs and their members

SMSF Deed Provisions

To allow members to make downsizer contributions, the express wording in the SMSF deed must be used, as well as including a written process, that states a clear resolution should the ATO reject the downsizer contribution.

Aged Pension

Adding downsizer contributions to a super fund may affect a members aged-pension due to a member’s superannuation being classified as a listed asset.

Proceeds and Borrowings

In regard to determining capital proceeds, any remaining debt on a mortgage is not considered.

SMSF’s must be audited annually by an accredited independent super fund auditor, such as Super Audits, who work exclusively with Accountants, Financial Planners and Administrators. Contact them today for a quote.

Posted in Super Audits Blog