Super Changes for First Home Buyers and Downsizers
The 2017 Federal Budget contained some initiatives for first home buyers and downsizers. With detail now released, we explore the possibilities and the implications for your super.
Does superannuation really offer an avenue to help downsizers and first home savers? The Government seems to think so. Late last month the detail of the housing initiatives announced in the Federal Budget was released for consultation.
So what does this mean for you?
If you are over 65, have held your home for 10 years or more and are looking to sell, from 1 July 2018 you might be able to contribute some of the proceeds of the sale of your home to superannuation. It's a way of building your superannuation quickly and taking advantage of superannuation's concessional tax rates.
- Contribute a lump sum of $300,000 per person to super without the restriction of the existing non-concessional contribution caps ($100,000 subject to your total superannuation) or age restriction
- Applies to the sale of any dwelling in Australia – other than a caravan, houseboat, or mobile home – that you've held continuously for at least 10 years and was your main residence for at least part of that time
- The $1.6 million transfer balance cap will continue to apply so your pension interests cannot exceed this amount
- The Age Pension means test will continue to apply
- If you qualify for at least a partial main residence exemption (or would if a capital gain arises), you may access the downsizer concession. This means that you do not actually need to have lived in the property for the 10-year period being tested
- Changes of ownership are taken into consideration between two spouses over the 10 year period, e.g. death, marriage breakdown or de facto relationship breakdown.
In general, the maximum downsizer contribution is $300,000 per contributor (so, $600,000 for a couple) but must only come from the proceeds of the sale. The contribution(s) need to be made within 90 days after your home changes ownership (generally, the date of settlement) but you can apply to the Tax Commissioner to extend this period. And, the initiative only applies once – you cannot use it again for future properties.
If you are considering using this initiative, it will be important to get advice to ensure that you are eligible to use this measure and the contribution does not adversely affect your overall financial position.
With soaring property prices and a higher level of investor activity, saving a deposit for a first home has become very difficult for some. From 1 July, 2018, the first home savers scheme will enable first home buyers to save for a deposit inside their superannuation account, attracting the tax incentives and some of the earning benefits of superannuation.
How does it work?
- First Home Buyers (FHBs) can make voluntary concessional contributions (e.g. salary sacrificing) or non-concessional contributions of $15,000 a year within existing caps, up to $30,000
- FHBs can then withdraw those contributions along with any deemed earnings to help fund a deposit for their new home
- Extracting the money from super requires an application to the Commissioner of Taxation for a first home super saver determination. The commissioner determines the maximum amount that can be released from the super fund.
- When the amount is released from the super fund, it is taxed at the marginal rate minus a 30% tax offset.
If you don't end up entering into a contract to purchase or construct a home within 12 months of withdrawing the deposit from superannuation, you can recontribute the amount to super, or pay an additional tax to unwind the concessional tax treatment that applied on the release of the money.
Accessing the scheme as an FHB requires that the home savers be 18 years or older and have not held taxable Australian real property (residential, investment, and commercial). Home savers also need to move into the property as soon as practicable and occupy it for at least 6 of the first 12 months.
As with the concession for downsizers, the first home saver scheme can only be used once.
While the capacity to voluntarily contribute to the first home savers scheme started on 1 July 2017 (with withdrawals available form 1 July 2018), it's best to wait until the legislation is enacted by the federal government.
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.