Budget 2017 | Superannuation

May 2017 

The use of the superannuation regime to provide incentives to resolve public housing issues is an interesting measure and one that will spark a lot of debate, but will first home buyers go for it? 

Encouraging the over 65s to downsize

Date of effect 1 July 2018

If you are 65 or over, the Government will allow you to make a non-concessional contribution of up to $300,000 from the proceeds of selling your home from 1 July 2018. 

This non-concessional contribution will be excluded from the existing age test, work test, and the $1.6 million balance threshold (but will not be exempt from the $1.6m transfer balance cap).

Interestingly, the Government is enabling "both members of a couple" to take advantage of the concession for the same home.  So, if you have joint ownership of the property and meet the other criteria, both people can make a non-concessional contribution up to $300,000 ($600,000 per couple).

The measure will apply to sales of a principal residence owned for the past ten or more years. It is important to note that sale proceeds contributed to superannuation under this measure will count towards the Age Pension assets test.

First Home Owners to Use Super Contributions to Save For A Deposit

Dates of effect 1 July 2017 - contributions. 1 July 2018 – withdrawals

The First Home Super Savers scheme will enable would-be first homeowners to withdraw voluntary contributions they make to super to act as a deposit for their first home. 

In practice, this will enable first home buyers to save for a deposit by salary sacrificing into their superannuation fund over and above their normal compulsory super contributions. 

If the individual is self-employed or their employer won't allow contributions to be salary sacrificed, the Government will allow them to claim a deduction for voluntary contributions under the scheme. 

Other key components of the scheme include:

  • First home buyers who make voluntary contributions from 1 July 2017 will be able to withdraw from their super for a first home deposit, along with associated deemed earnings
  • The Earnings that can be released will be calculated using a deemed return rate based on the 90-day Bank Bill rate plus 3% 
  • Concessional contributions and earnings will be taxed at marginal rates less a 30% offset. Combined with the existing concessional tax treatment of contributions and earnings, this is intended to provide an incentive that will enable first home buyers to build savings more quickly for a home deposit. 
  • Under the measure, up to $15,000 per year and $30,000 in total can be contributed within existing caps.
  • Withdrawals will be allowed from 1 July 2018 onwards. Both members of a couple can take advantage of this measure to buy their first home together.

In reality, the benefits of using the scheme could be relatively small for those on low income levels as salary sacrificing arrangements and additional deductions tend to be much more beneficial for those on higher incomes. It remains to be seen how popular this scheme will be with first home buyers, particularly if they are not absolutely confident that they will be able to save a deposit for a home in the near future.

Tax Relief Extended for Merging Super Funds

Extension of existing relief until 1 July 2020

The current tax relief for merging superannuation funds will be extended until 1 July 2020. Since December 2008, tax relief has been available for superannuation funds to transfer capital and revenue losses to a new merged fund, and to defer taxation consequences on gains and losses from revenue and capital assets. This tax relief was due to lapse on 1 July 2017.

Crackdown On Related Party Transactions

Date of effect 1 July 2018

The Government is concerned that related party transactions on non-commercial terms are being used to increase superannuation savings.  As a result, the non- arm's length income provisions will be amended to ensure expenses that would normally apply to a commercial transaction are included when considering whether the transaction is on a commercial basis.

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This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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