Downsizer contributions - evidence required by the auditor
Bill and Mary have just successfully made downsizer contributions of $250,000 and $290,000 to their Self Managed Superannuation Fund. As the close of the financial year is fast approaching and Bill wants to impress the auditor of the fund with his record keeping, what evidence must he obtain in relation to the downsizer contributions?
The evidence which will satisfy the auditor (and by default the ATO) in relation to the downsizer contributions is (as a minimum):
• Proof that they had attained age 65 at the time the downsizer contributions were made to the fund - this would require a copy of the driver’s licence, age card or passport.
The age 65 requirement applies to the beneficiary of the downsizer contribution and not the maker of the contribution. However as they are both beneficiaries of downsizer contributions, they must have attained age 65 before the downsizer contribution was made.
If Bill were 10 years younger, he could still make a downsizer contribution for Mary as she was the beneficiary of the contribution and she had attained age 65 by the time the contribution had been made. However, Bill could not make a downsizer contribution for himself (too young) and also Mary could not make a downsizer contribution for him (again too young).
In the May 2021 Budget, the Government has proposed that from 1 July 2022, this age 65 requirement will be replaced by an age 60 requirement.
• Proof that they have provided their Tax File Numbers to their SMSF.
In general, a super fund cannot accept a contribution from a member or by a third party for a member (e.g. a downsizer contribution made by Bill for Mary) unless the beneficiary of the contribution has provided their TFN to the fund. (The exception relates to employer contributions – but they are not presently relevant).
The required proof could be a copy of the TFNs of Bill and Mary in the records of the SMSF or in their member admission documents.
• Proof that the trust deed of the SMSF permits the trustee to accept downsizer contributions.
Normally, this proof is established by the terms of the trust deed. Most trust deeds of a super fund will have a provision dealing with contributions which can be made to the super fund. Sometimes the provision can be quite general in nature (covering all types of contributions) or amount to a shopping list of specific types of contributions which can be made or both.
If the trust deed contains a general contribution provision – then Downsizer Contributions must be covered by the general provision. If there is a shopping list of specific types of contributions – then Downsizer Contributions must be on that list.
• Proof that the ATO Downsizer Contribution form (NAT 75073) has been signed by the member (that is the beneficiary of the contribution and not the maker of the contribution), dated and received by the trustee of the SMSF.
This form must be given to the trustee of the SMSF at the same time as the Downsizer Contribution is made or before the Downsizer Contribution is made. If the form is received by the trustee of the SMSF after the Downsizer Contribution is made, then the contribution will not qualify as a Downsizer Contribution – but be treated as a personal contribution.
This form also contains space for the TFN and date of birth of the beneficiary of the contribution.
The form also contains space to include the amount of the Downsizer Contribution. If the amount exceeds $300,000 (the maximum amount of a Downsizer Contribution), the excess above $300,000 will be treated as a personal contribution.
If the Downsizer Contribution is made by electronic funds transfer, then transfer must be credited the SMSF’s’ bank account on or after the ATO Contribution Form is received by the trustee. If the contribution is made by cheque, then the date of the cheque should be on or after the ATO Contribution Form is received by the trustee.
• Proof that the Downsizer Contribution was sourced from the sale proceeds of a qualifying Australian dwelling (that is a dwelling which satisfies the main residence exemption) which has been owned for 10 years or more and the contribution is made within 90 days of settlement of the sale.
Strictly, the Downsizer Contribution does not have to be sourced from the sale proceeds though typically it will be. The legislative requirement is that the Downsizer Contribution must be made within 90 days of settlement of the sale of the qualifying dwelling and the amount of the contribution must not exceed the capital proceeds of the sale.
• Proof that there has not been an earlier Downsizer Contribution made in respect of the beneficiary (whether in the current financial year or a preceding financial year).
This proof is satisfied by the beneficiary of the contribution confirming that no other downsizer contribution has been made for them.
• Proof that the contribution satisfies the various technical requirements of the Downsizer Contribution rules.
While not strictly required by the ATO, it is prudent that specialist written advice be provided to the trustee of the SMSF which confirms that all the applicable technical requirements have been satisfied. This written advice can be incorporated into the trustee resolution accepting the contribution and, so, form part of the trustee record for the transaction.
For further information, please call Townsends Business & Corporate Lawyers on (02) 8296 6222 or email email@example.com