DOWNSIZER CONTRIBUTIONS AND SELF MANAGED SUPERANNUATION FUNDS

The downsizer contributions legislation, which allows homeowners aged 65 years or over to contribute up to $300,000 each into super as a tax free contribution came into effect on 1 July 2018.

How do downsizer contributions work?

There are three steps that need to be applied if a member would like to make downsizer contributions.  We have summarized these below including some important points.

Step 1 – Confirm Eligibility

The first step is to confirm that the contribution/s will be eligible. Broadly, an eligible downsizer contribution is where:

• the contribution is made to a complying super fund by a member aged 65 years or older. There is no age limit or gainful employment test that needs to be satisfied;
• the amount the member is contributing is equal to all or part of the capital proceeds received in respect of the sale of a dwelling in Australia that qualifies as a main residence under the downsizer provisions;
• the dwelling must be a fixed structure to qualify (Proceeds from the sale of houseboats, caravans, and other forms of mobile homes do not qualify);
• the member or the member’s spouse had an interest in the main residence before the disposal; (a new spouse can qualify if they have lived at the residence for two years);
• the interest in the main residence was held by the member or their spouse for 10 years or more prior to the sale – the ownership period is generally calculated from the date of settlement of purchase to the date of settlement of sale;
• the member has not previously made downsizer contributions in relation to an earlier disposal of a main residence (i.e. this is a once-off measure).

Step 2 – Making Contribution/s

Upon the sale of a main residence a member can make up to a maximum of $300,000 in downsizer contributions to their super fund.

The downsizer contribution:

• is not a non-concessional contribution and will not be counted towards the relevant member’s contribution caps;
• can still be made even if a member has a total super balance greater than $1.6 million;
• will not affect a member’s total super balance until their total super balance is re-calculated to include all contributions, including the downsizer contributions, on 30 June at the end of the financial year;
• will also count towards a members transfer balance cap, currently set at $1.6 million. This cap applies when you move your super savings into retirement phase;
• option for in specie contribution to be made in lieu of cash proceeds;
• the funds do not have to come from the proceeds of the family home e.g. The ‘downsizer’ new home may actually cost more than the family home that was sold but if other funds are available, the contribution can still be made;
• there is no requirement to buy a new home after the family home is sold.

Once the member sells their main residence, they are required to make the downsizer contributions to their super fund within 90 days of receiving the proceeds of sale, which is usually at the date of settlement. Given this 90 day timeframe, a member cannot make downsizer contributions if settlement is on vendor terms that go beyond 90 days (unless an extension has been granted by the ATO under certain circumstances).

The “Downsizer Contribution Into Super” form should be completed and given to the superfund’s trustee either before or at the time of making the downsizer contribution.

While multiple downsizer contributions in respect of the sale of the same residence can be made, the total amount of downsizer contributions made by each member cannot exceed $300,000. This total amount includes the amount of all downsizer contributions a member makes in respect of all of their superannuation funds.

It is important to note that the $300,000 downsizer contribution cap is for only one member, therefore this would potentially allow for additional contributions of $600,000 for a couple (ie, 2 x $300,000).

Example 1 – Bob and Mary, sell their home for $800,000. Each spouse can make a contribution of up to $300,000.

Example 2 – Fred and Betty, sell their home for $400,000. The maximum contribution both can make cannot exceed $400,000 in total (being the sale proceeds). This means they can choose to contribute half ($200,000) each, or split it – for example, $300,000 for Betty and $100,000 for Bruce.

Step 3 – Reporting and Verification

The super fund must inform the ATO of receipt of the downsizer contribution form during the super fund’s annual reporting. The ATO will then run verification checks on the amount and may contact the member for further information.

If the ATO identify that the contribution does not qualify as a downsizer contribution they will notify the superannuation provider. Once notified, the fund will assess whether the contribution could have been made as a personal contribution under the contributions acceptance rules. If the contribution could be accepted, the amount will count towards the relevant contribution cap and may result in the member exceeding their cap. If the contribution can’t be accepted, the contribution amount will be returned to the member by the super fund.

False and misleading penalties may be applied if the ATO identify that a downsizer contribution was not eligible and had been incorrectly declared.

Other points to consider

• The super fund trust deed must allow for the fund to accept the downsizer contributions. Please note if you have a SuperCentral Trust Deed and are participating in the annual renewal service, your SMSF can accept Downsizer Contributions as the SuperCentral Governing Rules were updated on 8 May 2018 to include provision for these contributions.
• Members should note that disposing of their main residence and contributing downsizer contributions to their super fund may impact on their Centrelink entitlements. Generally a person’s family home is not taken into account for determining eligibility for the age pension, however superannuation savings are taken into account once a member reaches pension age. This means that if a member disposes of their main residence and makes a downsizer contribution, it will generally be taken into account for determining eligibility for the age pension.
• Members should also be aware that downsizer contributions are not deductible.
• There is no requirement to buy a new home after the family home is sold.

Please contact our Superannuation Manager Helen Cooper on 08 9316 7000 should you wish to discuss your specific circumstances in more detail.

Any information provided in this article is general in nature and does not take into account your personal objectives, situation or needs. The information is objectively ascertainable and was not intended to imply any recommendation or opinion about a financial product. This does not constitute financial produce advice under the Corporations Act 2001.

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SUPERANNUATION GUARANTEE AMNESTY

On 24 May 2018, the Government announced the commencement of a 12 month Superannuation Guarantee Amnesty (subject to the passage of legislation) that is a once only opportunity for employers to disclose and pay previously undeclared super guarantee (SG) shortfalls without penalty. 

The Amnesty is available from 24 May 2018 to 23 May 2019. 

Benefits 

Employers who voluntarily disclose previously undeclared SG shortfalls during the Amnesty and before the commencement of an audit of their super guarantee will: 

• not be liable for the administration component of $20 per employee per late period 
• not be liable for Part 7 penalties that may otherwise apply to late SG payments; and 
• be able to claim a tax deduction for catch-up payments made within the 12-month period 

If you enter in to a payment plan with the ATO for your SG payments that extends past 23 May 2019, only those payments made between 24 May 2018 and 23 May 2019 will be deductible. 

Employers will still be required to pay all employee entitlements. This includes the unpaid SG amounts owed to employees and the nominal interest, as well as any associated general interest charge. 

Eligibility for the Amnesty 

To be eligible for the Amnesty you must: 

• voluntarily disclose amounts of SG shortfall within the 12-month Amnesty period – between 24 May 2018 and 23 May 2019, 
• disclose amounts of SG shortfall that have not previously been disclosed, and 
• not be subject to an audit of your SG for the relevant periods. 

The Amnesty applies to previously undeclared SG shortfalls for any period from 1 July 1992 up to 31 March 2018. It does not apply to shortfalls in SG accumulated after 1 April 2018. 

If you have already been assessed for a period, you can amend a previously disclosed SG shortfall, but only newly-disclosed amounts are eligible. 

How to access the Amnesty 

To take advantage of the Amnesty between 24 May 2018 and 23 May 2019, you need to: 

• Calculate your superannuation guarantee shortfall; and 

• Contact your accountant at GeersSullivan to calculate the nominal interest and organise the relevant application forms for submission to the ATO. 

Your accountant can provide further advice on participating in the Amnesty, based upon your particular circumstances. 

Payment options 

Where you can pay the full SG shortfall amount and the nominal interest you should pay directly to your employees’ super fund.  Where you are not able to pay the full SG shortfall amount for a period you should pay to the ATO and contact your accountant about setting up a payment plan. 

Impact on employees 

When you pay outstanding SG contributions, your employees will receive: 

• The SG shortfall amount  
• The nominal interest from the start of the relevant period to the date the SG is payable. 
• General Interest Charge that accrues on the SG shortfall amount. 

Make sure you inform your employees of any SG payments you make to them through the Amnesty as the contributions could result in them exceeding their concessional contributions cap. In this circumstance your employee should contact their accountant to apply to the Commissioner for his discretion to disregard the excess contributions made under the Amnesty.  

Contributions made under the Amnesty will not count towards your employees’ income or contributions for Division 293 purposes. 

Warnings 

Penalties  

Employers who are not up-to-date with their super guarantee payment obligations who do not come forward during the Amnesty may face higher penalties in the future. 

The Part 7 penalty is automatically imposed at 200% of the SGC amount, however this can be partially remitted. The ATO will take into account the employer’s ability to access the Amnesty, generally a minimum penalty of 50% of the SGC will be applied to employers who were eligible for the Amnesty but did not come forward. 

Passage of legislation 

Legislation to give effect to the Amnesty was introduced into Parliament on 24 May 2018 and is intended to apply retrospectively once enacted. 

If the proposed law does not come into effect: 

• any contributions and payments made under the Amnesty will not be tax-deductible. 
• any self-assessments that anticipated the new law will need to be amended to include the administration component, and you will be required to pay the administration component 
• Part 7 penalties will be imposed and may be remitted in accordance with the ATO’s existing remission policies. 

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