Practitioners advised not to skip the basics with downsizer

The eligibility age may potentially drop even further to age 55. Before the election, the Liberal Party announced they would reduce the downsizer age to 55, with Labor promising to match the pledge, said Mr Cullen.

With Labor reaffirming their intentions to hold a budget in October, this could be when they choose to formalise the election commitment, he said.

Given that downsizer contributions have been in place since 1 July 2018, Mr Cullen said SMSF professionals might assume that all their clients are across all the other details of the eligibility criteria.

“[However], this overlooks the idea that anyone under the age of 65 may not have given the concept much thought due to the fact they haven’t been eligible to make a downsizer contribution,” he said.

“With the reduction of the age threshold, there is now a new cohort of people that may be eligible that need to be aware of the remaining criteria.”

One of the important details that clients should be aware of is that the age limit is based on how old you are when making the contribution, not when they enter into a contract or settlement of the property sale, Mr Cullen noted.

The contribution, he reminded professionals and trustees, is limited to the lesser of $300,000 or the value of the proceeds from the disposal of the interest in the property. The member or their spouse needs to have held the interest in the property just before the disposal.

The contribution, he explained, must be made within 90 days after the change in ownership has occurred.

“This is considered the settlement of the transaction, not the signing of the contract. Under very limited circumstances the Commissioner does have the power to extend the 90-day period,” he stated.

“Considering this requirement with the age requirement at the time of making the contribution, it could be possible that someone aged 59 settles on the disposal of their main residence between early April and late June 2022, turns 60 within the 90-day period and then potentially becomes eligible to contribute a downsizer contribution early in the 2023 financial year, subject to meeting other criteria.”

The client will also need to complete and lodge the approved form with the superannuation provider, electing for the contribution to be treated as downsizer.

“It is important that this is done at the time of, or before, the contribution is made,” said Mr Cullen.

It is also important to remember that the property must have been held for at least 10 years by the member, their spouse or their former spouse, he added. 

“There are provisions to allow for the continuation of the period in which a property is held for events such as a transfer of a property from one spouse to another due to events such as divorce or separation and death and for substitute properties resulting from things as compulsory acquisition,” he explained.

In order to be eligible, the contributor must not have previously taken advantage of making a downsizer contribution from a prior sale.

“One thing you will not find in the legislation is the requirement to downsize. Downsizer eligibility is linked to the sale of the property, not the action you take afterwards. You don’t even need to buy another house to be eligible, Mr Cullen noted.

Mr Cullen also pointed out that with the drop in the age limit, different scenarios may come into consideration for younger clients that are considering a downsizer contribution.

“With the decreasing of the age, a 60 year old may not have met a condition of release in order to be able to access their superannuation,” he stated.

“If the proceeds from selling your home are needed for other purposes, contributing them to super could see them preserved until such time a condition of release has been met. The more common triggers to meeting a condition of release will be retirement or attaining age 65.”

The decrease in the age limit, Mr Cullen said, serves as a good opportunity to revisit the basic eligibility criteria regarding downsizer contributions.

“It also offers the opportunity to revisit some of the strategies that have been connected to making such contributions and to highlight that what is desirable and achievable for those over 65 is not necessarily the case for those under that age,” he noted.