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Super changes on for young and old

Posted on 12 April 2018
Super changes on for young and old

Melinda Bendeich, Manager, Technical Advice at ClearView

In the 2017 Federal Budget last May, the Government proposed a number of superannuation changes to improve housing affordability.

It announced the First Home Super Saver Scheme (FHSSS), aimed at helping young people enter the property market by enabling them to partially access their superannuation for a home deposit.

It also announced a 'downsizer contribution' to encourage Australians 65 years old and over to sell their home and invest for retirement, with the aim of 'freeing up' more properties for the younger generations.

These two initiatives are now law.  This article examines each benefit in detail and illustrates how they may be beneficial for your clients.

First Home Super Saver Scheme (FHSSS)

The FHSSS allows individuals to effectively save for their first home inside superannuation. From 1 July 2017, FHSSS voluntary contributions of up to $15,000 per year and $30,000 in total can be made into superannuation and these contributions, plus deemed associated earnings, can be withdrawn by first home buyers or builders.

The Government estimates that this could boost house deposit savings by up to 30 per cent given the tax benefits of using pre-tax dollars for contributions and the low 15% tax on super earnings (not to mention the potential for higher returns in super compared to standard deposits in bank accounts).

To be eligible for the FHSSS, your clients must be over age 18 and must never have owned any property in Australia. However, if they are jointly purchasing a property with someone who has previously owned property, the FHSSS is still available as it is individually tested.

The Australian Taxation Office (ATO) is administering the scheme and advising super funds on how much can be released after taking into account contributions tax. Once your client has obtained a contract to buy or build their first home, they have 12 months to request the release of FHSSS contributions.
Withdrawals will generally be taxed at your client's marginal tax rate, however, a 30 per cent tax offset will apply.  Importantly, withdrawals will not be assessable by Centrelink or the Department of Veterans' Affairs and there will be no impact on payments such as Family Tax Benefits.

Case study

Reagan rents a studio apartment and is on an annual salary of $100,000. She is keen to buy her first home.

If Reagan made voluntary salary sacrifice contributions of $10,000 p.a. for the next three years, she would have $24,777 to withdraw from her super, according to the First-home buyers' super saver scheme estimator tool which allows for 15% contributions tax (www.budget.gov.au/estimator/).

This is estimated to be $6,191 above what would have been available saving via a standard deposit account using after-tax salary.

Downsizer contributions

Australians aged 65 and over who sell the family home to free up equity to fund their retirement will be able to make additional super contributions of up to $300,000, from 1 July 2018.

This benefit can be utilised by both members of a couple for the same home, resulting in a total possible contribution of $600,000 per couple.It will apply where the contract for the sale of the home is entered into (exchanged) on, or after, 1 July 2018.

Contributions made under this legislation will not count towards other super caps.Additionally, no work test or age restrictions apply, however, you clients must have owned their home for at least 10 years and it must be their principal residence.

It's important to be aware that your clients may risk losing some or all of their Age Pension. While the family home is exempt from the Asset Test, the additional $300,000 super contribution will be an assessable asset.

Finally, to be eligible to make a downsizer contribution, there is no requirement to purchase a new home.This may provide retirement planning opportunities that were not previously available to those over 65 years of age and retired.

Case study

Frank and June, both 65, are about to retire.  For over 20 years, they have owned and lived in their home which is valued at $800,000.  They own a holiday home on the coast and plan to relocate to this property at retirement.

Upon the sale of their principal residence for $800,000, Frank and June are able to contribute an additional $300,000 each (total $600,000 from the sale proceeds) into super to help provide for their retirement.
They are not limited by the standard $100,000 p.a. cap that normally applies to those 65 and over.



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