Downsizer in-specie contributions confirmed by ATO

The ATO has confirmed to the SMSF Association that an individual can make a downsizer super contribution as an in-specie (ie non-cash) contribution, provided that the other eligibility criteria are satisfied.

SMSF Association Technical Manager, Mary Simmons, said there has been some confusion in relation to the ATO’s view on in-specie downsizer contributions stemming from Law Companion Ruling LCR 2018/9. In particular, para 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.

Ms Simmons said the ATO has now 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 (eg an off-market transfer of listed shares), provided the value of the asset is equal to all or part of the proceeds from the disposal of the qualifying dwelling.

– Stuart Jones, Senior Tax Writer, Thomson Reuters

The contribution also needs to 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, the SMSF Association said it is 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 s 66 of the SIS Act.

Example: in-specie downsizer contribution

The SMSF Association sets out the following example to illustrate the operation of an in-specie downsizer contribution.

A couple aged in their 70s sell their home for $1.35m. 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.

Thomson Reuters comment

Downsizer contributions are an important consideration for people aged 65 and older as they do not count towards an individual’s non-concessional contributions cap and are exempt from the contribution rules for those 67 and over. They are also exempt from the restrictions on non-concessional contributions for people with total superannuation balances above $1.6m ($1.7m from 2021-22).

Importantly, individuals should consider making any other non-concessional contributions before making a downsizer contribution. This is because a downsizing contribution, once made, will still count towards the individual’s total superannuation balance. So careful planning is necessary to get the timing right. See Thomson Reuters Australian Tax Handbook 2021 (at [39 445]) and Australian Superannuation Handbook 2020-21 (at [7 750]).

This article was first published in Thomson Reuters’ Weekly Tax Bulletin.

Stuart Jones is a Senior Tax Writer with Thomson Reuters and a respected commentator on all matters superannuation. Stuart is the author of the Australian Superannuation Handbook and contributes extensively to other Thomson Reuters’ services, including the Australian Tax Handbook.

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