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Heed restrictions on downsizer contributions

Downsizer contributions can be a valuable strategy for members who are retired or have reached their contributions caps to tip further funds into super, but advisers need to be aware of the restrictions around which property sales are eligible, according to a technical services expert.

   

 

Downsizer contributions can be a valuable strategy for members who are retired or have reached their contributions caps to tip further funds into super, but advisers need to be aware of the restrictions around which property sales are eligible, according to a technical services expert.

Fitzpatricks head of strategic advice Colin Lewis told SMSF Adviser the contributions were an ideal strategy for those who were older, no longer met the work test and couldn’t contribute any more to super through other means, as they did not count as a non-concessional contribution.

“It’s great for people who might not be able to contribute to super because they are aged 75 or more, or no longer working, or perhaps they’ve got too much in super already,” he said.

Mr Lewis said some of the common queries from advisers about the contributions were around eligibility and specifically the type of property being sold, as it made a difference to whether the contribution would be accepted.

“You get some weird and wonderful arrangements where people think they can do it — for example, someone might sell an investment property and think they can contribute, or they might subdivide a parcel of land into six but in that case they haven’t actually sold a house,” he said.

Mr Lewis clarified that downsizer contributions were only eligible if they were proceeds from a physical dwelling that was or had been a member’s main residence. 

However, beyond this there was no requirement for the member to be actually “downsizing” by moving to a smaller or lower-value home. 

“The ability to make a downsizer contribution from age 65 hinges on making the contribution within 90 days of settlement of a property that was owned for at least 10 years which qualified for the main residence exemption, so you could sell an investment property that was once your home and that would qualify,” he said.

“So, you don’t have to sell the last dwelling you’ve lived in to be able to qualify for it, but then again, you can’t just sell a straight-out investment property.”

Mr Lewis said he had also received queries about the effectiveness of the strategy for members that had already reached their transfer balance cap, but said contributing funds to accumulation stage accounts was still a tax-efficient option.

“People think if they’ve started an account-based pension and used their $1.6 million then why put more money in, but how else are they going to invest that money?” he said.

“If they are investing it outside and paying tax on their earnings, they are better off having it in accumulation phase even if they can’t get it into retirement phase.”

 

 

Sarah Kendell
30 August 2019
smsfadviser.com

 


David Forrest Download David's Adviser Profile

David Forrest

Director
BEc (Acc), MBA, CPA, FFin

David has been in the Financial Services Industry for nearly 30 years. He was one of the founding Directors of the successful Financial Planning and Stockbroking Practice, Henderson Gregory Forrest, for a decade. Prior to that, he held senior roles in companies such as ING, KPMG Accountants and AMP. David was previously Chairman of OAMPS Superannuation Trustee Board and currently serves as an independent Board Director for several companies.

David’s extensive experience in all forms of superannuation, including Self Managed Super Funds (SMSF), Defined Benefit Funds, retirement funding through Account Based Pensions, stockbroking with a focus on Direct Share Investment, Taxation/Remuneration Planning, Centrelink, Aged Care and business management, equip him to advise expertly on all aspects of Financial Advice.

Those with a particular interest in superannuation/SMSFs, direct share investment, salary packaging or applying for the Centrelink Pension will find his knowledge and ability in formulating and implementing creative, logical and simple wealth creation strategies a valuable asset.

David maintains a strong personalised client service focus, providing tailored solutions for clients.

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David Forrest is an Authorised Representative of Integrity Financial (SA) Pty Ltd ABN 16 133 921 187 — AFSL No 334846

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Michelle Forrest

Business Finance Manager
B Bus (Acc), CPA

Michelle’s career has spanned across the Financial Services, Retirement Living and Aged Care industries working in the private sector, not for profit and more recently with the state government for over 20 years. Her experience extends to many facets of the financial services industry, having worked in superannuation administration, technical support and financial planning practice administration.

Commencing with AMP and subsequently working in commerce and accounting roles with companies such as Brambles, Adelaide Bank Retirement Services, ECH Inc and SA Health and Wellbeing, Michelle returns to financial services after working in practice financial management at Henderson Gregory Forrest. This wide range of experience from senior accounting and management roles has provided Michelle with a strong background in business administration.

With an astute financial acumen and keen interest in business improvement strategies, Michelle ensures the smooth running of the Integrity Financial Advisory practice providing valued management support to our personalised client service focus.

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Jasmine Smith

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Jasmine has worked in the financial services industry for over 12 years in all areas of client administration, working with David since 2013.

Jasmine has extensive knowledge and experience in client service including implementation of advice, portfolio reporting, assisting with the establishment of Self Managed Super Funds (SMSFs), term deposit management and a long history of helping clients with their enquiries.

Jasmine’s attention to detail, yet gentle approach, means she is able to solve the trickiest of questions for our client community.

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Merrilyn has worked in the financial services industry for over 11 years in all areas of client administration, and is a new addition to our client services team, returning from Melbourne to join the team in June 2019.

Merrilyn has extensive knowledge and experience in client service including implementation of advice, managed fund administration, assisting with the establishment of Self Managed Super Funds (SMSFs) and process improvement for the previous practices she has worked with. Merrilyn’s experience with direct shares constitutes the other part of our administrative support for direct equity investments.

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