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Downsizer contributions benefit from ‘no rules’

downsizer contributions

Trustees should not underestimate the opportunities presented by downsizer contributions particularly where the rules are not explicit in how it can be used

The real opportunities derived from downsizer contributions for SMSF members exist where there are “no rules”, an SMSF technical expert has said.

Heffron managing director Meg Heffron said trustees should not underestimate the potential benefits presented by downsizer contributions and try to consider them as more than an opportunity to make an extra contribution at a time they thought the chance of making such a contribution was long gone.

“The interesting thing about downsizer contributions, I think, are the bits where there aren’t rules,” Heffron said at the SMSF Association 2020 National Conference held on the Gold Coast last week.

“The rules are quite simple and short – it’s where there are no rules that the really interesting stuff happens.”

She pointed out there was no requirement for a downsizer contribution to be in proportion to ownership interest, or that it be intended to add more to superannuation, and this represented a real opportunity for members.

The limited requirements placed on couples and property in relation to downsizer contributions also had tremendous potential to benefit members, she noted.

“The most fascinating thing about [downsizer contributions] is all the circumstances under which you can do them even though your client might not feel like they’re downsizing,” she said.

“Remember, they don’t even have to buy another home, they don’t have to buy a smaller home [and] they don’t have to buy a less expensive home. [It is] selling the home that meets the conditions [that] is the ticket to play.”

The only real downside to downsizer contributions was that they would not immediately increase the $1.6 million transfer balance cap, she added.

In December last year, questions were raised about the source of the $1 billion contributed into superannuation through downsizer contributions and how much had come from the sale of a primary residential home or from other sources seeking to take advantage of a lower tax rate.

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