Townsends Business and Corporate Lawyers special counsel Michael Hallinan said that while a lot of SMSF practitioners are aware of the risk that contributions made through the home downsizing scheme have on the level of Centrelink pension received by clients, it could also result in the loss of other benefits.
“Downsizer contributions will be counted as part of the assets test and will either exclude or reduce the client’s entitlement to the age pension and potentially the Commonwealth Seniors Health Card also,” said Mr Hallinan.
“It’s wonderful to be able to put more money into superannuation but if the end result is that your client no longer has an age pension or is no longer entitled to the seniors health benefits card, they’re not going to thank you in any way, shape or form — they may even contact their lawyer.”
If the client was only on a part pension before making the contribution, then afterwards they may be receiving no pension, he said.
“This has tremendous impact. Even if the pension entitlement falls to zero for just a fortnight then any pre-1 January grandfathering that applied to the pension will be lost in relation to the income test purposes,” he warned.
“Your client may be able to make these contributions, but they’re transferring [money] from their prior principal residence which is a tax-free, low regulatory environment so exempt from the assets test environment, into an environment which is now highly regulated and subject to political change and it will now be counted for Centrelink purposes.”
If a person receives additional assessable cash/means tested assets due to ‘downsizing’ their residence (an exempt asset) then it doesn’t matter where the downsizing proceeds sit, they will likely be assessed by Centrelink whether inside super or outside!
The ‘downsizing’ contribution is only available to those age 65 or more so there is a limited ability to shelter the downsizing proceeds in super for those whose Age Pension age is over age 65.
So, the client wants to downsize or, are you saying the Adviser convinces them to BECAUSE they can contribute to super?
Good advice is always about strategy and then looking at the pros and cons and weighing these up against the client objectives.
If a client is interested in downsizing, would they not if they then could maintain their government benefits? What could be the longer term implications of a decision such as this? That is what advisers would turn their mind to.