It was recently brought to our attention that there has been some confusion in relation to the ATO’s view on in-specie downsizer contributions.
The confusion appears to stem from LCR 2018/9: Housing affordability measures: contributing the proceeds of downsizing to superannuation which was initially issued by the ATO in November 2018. 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.
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.
For example, a couple aged in their 70s sell their home for $1.35 million. They meet all the eligibility requirements to make a downsizer superannuation contribution of $300,000 each. Instead of using the cash proceeds from the sale to make their contributions, they choose to transfer a portfolio of listed shares into their SMSF which they already own individually. The market value of the in-specie contribution of listed shares to the SMSF will be equal to $600,000. An off market share transfer form will be executed and given to the SMSF trustee within 90 days of receiving the proceeds from the sale of their home. The contribution will also be accompanied by the Downsizer contribution into super form.
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 s66 of the SIS Act.
We will now focus our efforts on working with the ATO to update their material to ensure that there is a consistent application of the rules and the intent of the law is upheld.
For more on the downsizer contribution refer to our Technically Speaking publication on downsizer contributions or visit the ATO’s website.
Opinion piece written by
Mary Simmons, Technical Manager