A bill is currently before the Senate that would further reduce the eligible age for Downsizer contributions to 55.
Ministry of Finance Act Amendment (Measure No. 2 of 2022) Bill 2022 It passed the House this week and is now pending in the Senate.
If the measure is enacted, 55-year-old individuals will be able to make downsizer contributions to their retirement plans from the proceeds of the sale of their primary residence.
The eligible age for Downsizer contributions was lowered from 65 to 60 on July 1 of this year. Heading into federal elections, both Labor and the coalition have also said they would support a reduction to 55 years.
The measure is expected to start at the start of the first quarter after the bill receives royal assent.
In a recent podcast, Colonial First State senior technical manager Tim Sanderson said this could mean the bill could start as early as October 1 this year.
Sanderson said there are several things advisors must consider about the contribution of downsizers, especially for younger clients.
Advisors should consider how much cash the client has to contribute to the super and whether making a downsizer contribution is actually a viable strategy, he said.
“For many, taking advantage of the carryover rule and contributing up to $330,000 is sufficient, allowing clients to save a one-time ability to make downsizer donations for the future.” he explained.
“On the other hand, if a couple has large amounts of cash available, it may be advantageous to make downsizer contributions in addition to non-concessional contributions. It can be particularly tax-effective.”
However, Sanderson warns that it’s also very important to consider shelf life.
“They can’t access the funds until after they meet the conditions for their release, such as retirement, which may not be until age 65,” Sanderson said.
“You have to be very careful when considering whether you need access to the funds, as they may not have access for up to 10 years,” he warned.
