The ability to make downsizer contributions has been growing in popularity, with an opportunity to utilise these contributions to not only top-up existing super accounts, but to also use as part of a recontribution strategy to improve an individual’s tax-free and taxable components. We have seen in a pre-cursor to the Federal Budget, an announcement that the downsizer contribution age will be expanding (reduced) to individuals 60 years of age and over (currently 65).
Recently, the ATO has provided an important reminder with SMSF trustees about the obligations to produce sufficient and appropriate audit evidence to support the acceptance of downsizer contributions.
As we know, from 1 July 2018, individuals aged 65 years or older can make downsizer contributions into their fund of up to $300,000 from the proceeds of selling their main residence provided certain eligibility requirements are met.
For the purposes on conducting the SMSF annual audit, approved SMSF auditors need to obtain sufficient and appropriate audit evidence to verify the fund has complied with the downsizer contribution requirements.
At a minimum, we expect auditors to check for and obtain evidence of the following:
- the member is aged 65 years or older at the time the contribution was made
- a tax file number (TFN) for the member has been provided
- the SMSF trust deed to ensure the fund can accept a downsizer contribution
- an approved Downsizer contribution into super form (NAT75073) from the member that has been signed and dated. The member is able to use a form provided by the fund however, to be in the approved form, it must contain a number of key elements which are listed on the ATO’s website
- the contribution was made either at the same time or after the form was received by the fund and that the contribution does not exceed the $300,000 cap per member
- the member has not previously made downsizer contributions to the fund from a previous sale of property
- the contribution has been correctly allocated to the member’s account.
Importantly, auditors are not required to check if a member has met any other downsizer eligibility requirements as they can rely on the member making a correct declaration on the approved form (NAT75073).
Contributions that do not meet the eligibility criteria as a downsizer contribution may be able to be accepted by the fund as a personal contribution for the member. Where the contribution does not satisfy the acceptance rules under regulation 7.04 of the Superannuation Industry (Supervision) Regulations 1994, trustees are required to ensure the contribution is returned by the fund. The contribution must be returned within 30 days of the fund becoming aware that the amount received did not meet the eligibility criteria (where the SMSF trust deed allows this).
A contravention of regulation 7.04 occurs where the contribution is not returned within 30 days.
Smarter SMSF has created compliant documents to support downsizer contributions into a SMSF. You can view to help video and sample documents here.