fbpx

Downsizer contribution conditions clarified

SMSF members planning to make a downsizer contribution from the sale of their home will not be restricted as to the source of those funds and may instead transfer other assets of equal value into the superannuation, according to the SMSF Association.

In an update on the industry body’s website, SMSF Association technical manager Mary Simmons said the view that downsizer contributions could only be made from the proceeds of the sale of a home was incorrect and the organisation had sought clarity from the ATO on the issue of in-specie downsizer contributions.

Simmons said the association took that step after members expressed concerns about the regulator’s position on the matter stemming from statements in Law Companion Ruling 2018/9, which relates to contributing the proceeds of downsizing into superannuation.

“In particular, paragraph 62 suggests that if an individual is eligible to make a downsizer contribution, they can only make it as an in-specie contribution if they use the proceeds of downsizing to buy the asset they are contributing. This suggestion is incorrect,” Simmons said.

“The ATO recently confirmed to the SMSF Association that provided the downsizer eligibility criteria is met, there is no need to analyse how the contribution is funded, provided it does not exceed $300,000 or the total capital proceeds from the sale of the qualifying dwelling.

“This means that an individual can make a downsizer contribution as an in-specie contribution, provided the value of the asset is equal to all or part of the proceeds from the disposal of the qualifying dwelling.”

She gave the example of a couple in their 70s selling a home for $1.35 million and, having met the eligibility requirements to each make downsizer superannuation contributions of $300,000, they do so by transferring a portfolio of listed shares, which they already own individually, into their SMSF.

For the contribution to take place, the market value of the in-specie contribution of listed shares would be equal to $600,000 and an off-market share transfer form would be executed and given to the SMSF trustee within 90 days of receiving the proceeds from the sale of their home, she added.

“With the existing strict eligibility criteria that an individual must satisfy to be eligible to make a downsizer contribution, we are pleased that the ATO’s interpretation supports the intent of the law and does not see any mischief if the contribution is funded via an in-specie transfer of any asset(s) provided it is at arm’s length and permitted by section 66 of the Superannuation Industry (Supervision) Act.”

Source: smsmagazine.com.au