Liam Shorte, director of SONAS Wealth, said at the SMSF Adviser Technical Strategy Day in Sydney last week that he considers the downsizer strategy as “the final contribution” because it’s a one-off contribution that can be used at any time after the age of 55.
“You don’t rush it just because the government [gave the age threshold] as 55. You don’t have to jump in on selling that property around 55 or 60,” he said.
“Do you really think that the house you sell at 55 is going to be the last home you own? As I said, this is a one-off that you can use at any time, so use all the other options first before you start looking at it.”
It is also important to understand the nuances around using the downsizer strategy, Shorte said, as there are some misconceptions around how it works.
“The property has to be claimed as the principal residence for a period of time of ownership, but it doesn’t have to be the family home for the whole period.”
“And even if the property is owned by one partner, the other partner can also use the downsizer contribution option.”
Another misconception was that contributions from the sale have to be made within 90 days of settlement.
“That’s rubbish. You can phone the ATO and ask for an extension,” Shorte said.
“I have one client who has been on an 18-month extension, because the property that they are moving into has been delayed in being finished. We’ve explained it to the ATO, and although we can send in proof that it’s delayed, the Tax Office took our word for it and has given another six-month extension.”
He added that in his own practice, when he knows a client is going to use the downsizer strategy, as soon as they have sold their property and have not yet purchased another, he contacts the ATO for an extension “just to have an impact”.
“And as long as they’re at least 55 at the time of the contribution being made, they don’t actually have to downsize free of capital. They could actually just use it for an overdrawn re-contribution strategy.”
“They can actually upsize the property if they want to get more money into the family home, so it’s excluded from asset tests for the age pension and things like that, and it doesn’t have to be proceeds from the sale of the house.”
Shorte warned that if clients don’t lodge the necessary tax forms before they make the downsizer contribution, it must be classified as a non-concessional contribution.
“The problem is, when people sell property, they’re often trying to do the downsizer and the $360,000. If they forget to put in the downsizer form on time, they’re going to mess up that strategy completely, and you’ve got an excess NCC issue.”
