Advisers are just now latching onto the benefits of the downsizer contribution rules and adding it to their kitbag of tricks, according to Meg Heffron, the eponymous co-founder and managing director of SMSF consultancy Heffron.
The legislation – which lets retirees make a contribution of up to $300,000 from the proceeds of selling their home into super – was introduced in mid-2018 as part of a suite of reforms to increase housing affordability.
Heffron says it was overshadowed by the broader tranche of 2017 reforms, however, which were still being absorbed by advisers and SMSF trustees.
“It’s almost like some of the 2018 changes were lost in the noise of 2017,” Heffron says, adding that there is often a lag in understanding when a significant reform is implemented. “When a rule changes the implications and the best ways to use them don’t always immediately sink it.”
A year on, however, she reckons advisers are getting savvy at looking for instances where clients can benefit from the rule.
“What we’re discovering now is some of the nuances around those conversations,” she explains. “Often you just assume there’ll be no downsizer opportunity but there is, the classic situation being where an older client has sold their investment property and assumed that it doesn’t count for the downsizer rule, but you find out it was their principle place of residence at some point.”
Part of what makes the rule so handy, Heffron explains, is that it’s largely counter-intuitive because it gives people who have been retired a long time the ability to do something they’ve traditionally been blocked from doing – putting money back into super.
“It’s a weird thing, right, to be putting money into super when you’re going into a retirement home,” she says. “There’s no work test and there’s no balance test. Older wealthy people have been locked out of their balance traditionally because of their age but the downsizer system ignores both those rules.”
Up to this point, she says, advisers haven’t fully latched onto the potential of the rule because it is so different, and compared to other, more high-profile changes it’s easy to forget.
“I’ve seen cases where the adviser is wanting to put more super in and they ask if they want to sell and all of a sudden there’s this lightbulb moment.”
Much like the transition-to-retirement rules that advisers were previously able to take advantage, Heffron reckons the downsizer rules are giving advisers another clear way to demonstrate their value to clients.
“In 12 months-time the downsizer rule will be a well understood quirk, but funnily enough 18 months on it isn’t the immediate go to strategy,” she says. “The TTR was the same when it came in – it wasn’t a go-to strategy either, it took a while.”
Heffron will be speaking on the self-managed superannuation fund contribution landscape in 2020 at the SMSF Association’s National Conference on the Gold Coast on Thursday, February 20.
