The two measures, which were announced in the Budget earlier this year, aim to make it easier for first home buyers to save for their first property and for people over the age of 65 to downsize.
First home buyers
On Friday, the draft legislation was launched for the First Home Super Saver Scheme (FHSSS) that enables individuals to contribute a total of $30,000 (and a maximum of $15,000 a year within existing caps) into their superannuation in a bid to assist them in saving for a deposit for their first home.
Eligible savers over the age of 18 that are buying real property in Australia for the first time (i.e., those that do not own investment properties, commercial properties or vacant land) will then be able to withdraw the contributions along with deemed earnings in order to help fund a deposit on their first home.
The deposit can cover vacant land (if the land was to be built on), but would not include any premises that is not capable of being occupied as a residence, and would not include houseboats or motor homes.
Pre-tax contributions will be taxed at 15 per cent, while withdrawals will be taxed at marginal tax rates less a 30 per cent offset.
Voluntary contributions made from 1 July 2017 will be eligible for withdrawal (provided all criteria are met) from 1 July 2018.
The maximum release amount will be equal to the sum of eligible contributions and associated deemed earnings.
For example, if a saver made concessional contributions (e.g., through salary sacrifice), they would be able to withdraw 85 per cent of those contributions (reflecting the 15 per cent tax). They would be able to withdraw 100 per cent of any non-concessional contributions.
Deemed earnings calculated using the Shortfall Interest Charge (currently 4.78 per cent) would be based on when eligible contributions are made up until the date release amount is determined.
The consultation draft outlines that those using the FHSSS would have 12 months after releasing the savings to sign a contract to purchase a qualifying home. Those needing longer would be required to ask the ATO for a 12-month extension.
However, if those using the FHSSS do not buy a home in the time period, they will either be required to recontribute the release amount into superannuation, or pay a tax equal to 20 per cent of the amount released from superannuation.
In order to ensure that the property is not bought for investment purposes, the property bought must be occupied “as soon as practicable” and for at least six months of the first 12 months after it is “practicable” to do so.
As well as the FHSSS, the Treasury has also launched a consultation into its package that aims to “remove the barriers that discourage retirees from downsizing their homes,” and thus “freeing up” the stock of larger houses for young families.
Under the draft legislation, Australians aged over 65 will be allowed to make an exempt contribution to their superannuation after downsizing their family home from 1 July 2018.
Those selling their home will be able to make a non-concessional (post-tax) contribution into their superannuation of up to $300,000 from the proceeds of sale. However, the contributions are limited to proceeds of sale – so those selling their home for less than $300,000 would be limited to contributing the sale amount only.
The Treasury has revealed that existing contribution caps and restrictions will not apply to this downsizer contribution at the time, but the $1.6 million transfer balance cap and Age Pension means test will continue to apply and will count towards total superannuation balance tests in later years.
Existing voluntary contribution rules and restrictions would not apply to this special non-concessional contribution, and both members of a couple could take advantage of the measure (contributing up to $600,000 from the proceeds of selling their home) as long as one of them is on the title.
The measure will apply to homes used as a main residence held for a minimum of 10 years, excluding caravans, motor homes and houseboats.
According to the package, those making a downsizer contribution would not be required to make any subsequent property purchase, but the contribution must be made within 90 days after the home changes ownership (i.e., after settlement).
The Treasury added that there is no general restriction for people opening a superannuation account to make a downsizer contribution should they not currently have one.
Announcing the consultation on Friday, Treasurer Scott Morrison said: “These important measures are part of the government’s comprehensive approach to housing affordability announced in the 2017-18 Federal Budget that aim lower the cost of living for Australians.
“Housing affordability is a major issue affecting many Australians and there is no silver bullet.
“The government’s comprehensive plan will improve outcomes across the housing spectrum – from the homeless and those who depend on social housing to first home buyers and older Australians looking to downsize.”
He called on all “interested stakeholders” to make a submission on the draft legislation, which is available to view on the Treasury website.
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Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.