“As the downsizer contribution is a new type of contribution, the SMSF’s deed should have express wording that allows members to make these contributions to the fund, especially as a member over 65 years may not be gainfully employed and in many cases a member may be in excess of 75 years. To date, contributions cannot generally be made for such members under reg 7.04 of the Superannuation Industry (Supervision) Regulations 1994 (Cth),” said Mr Butler.

“Additionally, the SMSF deed should provide appropriate mechanisms in resolving what happens when a downsizer contribution is deemed ineligible by the ATO.”

In terms of reporting, the SMSF, Mr Butler said, will need to receive approved downsizer contributions forms from the SMSF and report those contributions to the ATO.

He also noted that the current ATO view is that if a member has a mortgage over the relevant property, only the net proceeds up to the $300,000 maximum cap can be contributed.

“For example, John bought his main residence 12 years ago for $1 million. He then sells for $1.25 million when his outstanding borrowings are $1 million,” he explained.

“John has $250,000 capital gain and he only receives net proceeds of $250,000. Thus, John can only make downsizer contributions of $250,000 even if he had extra other cash to contribute under the downsizer provisions.”

Mr Butler also reminded practitioners that if a client disposes their main residence and makes downsizer contributions to their super fund, this may adversely impact on their Centrelink entitlements.

“A person’s family home is generally not included in the assets test, however superannuation savings are included once a member reaches pension age,” he said.