Government changes to super will benefit people at the start of their home-owning journey and those later in life looking to downsize.
Two Federal government housing affordability schemes that involve changes to superannuation are set to come into full effect from 1 July 2018.
From July 1, eligible first home buyers and those looking to downsize their home will be able to use their super either to partly fund their purchase (first home buyers) or to deposit part of the proceeds from the sale of the family home (downsizers).
First Home Super Saver Scheme
The First Home Super Saver (FHSS) scheme was first announced as part of the 2017-18 Federal budget in May 2017.
From 1 July 2017, those eligible to participate in the scheme have been able to make voluntary concessional (before-tax) and non-concessional (after-tax) contributions into their super fund to save for their first home.
Existing superannuation contribution caps still apply to those participating in the scheme. For example, the annual financial year cap on concessional contributions remains at $25,000.
To qualify for the scheme, people must:
- not have previously owned property in Australia, including an investment property,
- not have previously released FHSS scheme funds,
- either live or intend to live in the premises they are buying as soon as practicable, and
- intend to live in the property for at least six months of the first 12 months they own it, after it is practical to move in.
In certain circumstances the Commissioner of Taxation may determine that someone has suffered a financial hardship (as specified by regulations) and make an exception to the qualification criteria.
From 1 July 2018, participants in the scheme can apply to have their FHSS scheme contributions, along with associated investment earnings, released to assist with purchasing their first home.
Participants, who must be 18 years or older, can apply for the release of voluntary contributions up to a maximum of $15,000 from any one financial year and $30,000 in total across all years. The released funds will be taxed at the individuals marginal tax rate less a 30 per cent offset.
If a couple buy a house together, both can take advantage of the scheme, thereby potentially amassing up to $60,000 between them to put towards the purchase of their first home.
Once the funds are released, participants have up to 12 months to sign a contract to purchase or build a home.
The Federal government believes that “most first home buyers will be able to accelerate their savings by at least 30 per cent using the Scheme”.
Older Australians looking to downsize will also benefit from changes to superannuation which will allow those who meet the eligibility requirements to make a sizeable contribution to their super from the proceeds of the sale of their home.
From 1 July 2018, eligible individuals aged 65 years or more who sell a home they have owned for at least 10 years will be able to contribute up to $300,000 from the proceeds into their superannuation accounts over and above existing contribution caps and restrictions, including the current total super balance cap of $1.6 million.
Both members of a couple will be able to take advantage of this measure, therefore together having the potential to contribute up to $600,000 from the proceeds of the sale into their super.
Other important information downsizers should be aware of when considering this option include:
The date of contracts exchange must be on or after 1 July 2018
Work test rules do not apply, i.e. you can be retired and still make a downsizer contribution
Downsizer contributions are not tax deductible and will be taken into account for determining eligibility for the age pension
If you sell your home, are eligible, and choose to make a downsizer contribution, there is no requirement to purchase another home
The house sold must be in Australia and cannot be a caravan, houseboat, or other mobile home
Proceeds from the sale of the house (capital gain or loss) are exempt or partially exempt from Capital Gains Tax (CGT)
Contributions to your super from the downsizing sale must be deposited into your super account within 90 days of receiving the proceeds
Individuals can only take advantage of the downsizer super option once, and
A SATO form must be completed and lodged with your super fund at the time the funds are contributed.
It should be noted that in cases where the ATO finds that downsizer contributions do not comply with the rules, penalties may apply.
If you have an interest in either the FHSS scheme or downsizing, contact your super fund for further information. Further information is also available at the ATO’s website:
Andrew Proebstl is chief executive of legalsuper, Australia’s super fund for the legal community