The Bills containing two measures relating to housing affordability have passed the Senate.
The Bills containing two measures relating to housing affordability as announced in the 2017-18 Federal Budget have passed the Senate. The Bills are contained in Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 1) Bill 2017 and First Home Super Saver Tax Bill 2017.
Measure 1: First Home Super Saver Scheme
The First Home Super Saver Scheme FHSSS allows eligible first home savers to withdraw from super their ‘releasable amount’. This consists of eligible non-concessional contributions, 85 per cent of voluntary concessional contributions made from 1 July 2017 and associated earnings.
First home savers will be able to make their first withdrawal from 1 July 2018.
Who is eligible?
Eligibility for the FHSSS is extended to savers who have never had an interest in a property including a home or investment property. In addition, they must be 18 or over and have not previously withdrawn an amount under the scheme.
What is included in voluntary contributions?
Voluntary contributions covered by the scheme include:
- Non-mandated employer contributions, such as:
- Salary sacrifice contributions
- Voluntary employer contributions
- Member contribution made by the member, such as:
- Personal deductible contributions
- Non-concessional contributions made by the member
Contributions which are not eligible include:
- Mandatory employer contributions (eg super guarantee contributions).
- Spouse contributions
- Government co-contributions
- Contributions to defined benefits funds and constitutionally protected funds
How does it work?
The ATO will calculate the amount of earnings on the contributions and include that in the total in the releasable amount. The calculated earnings rate is the Shortfall Interest Charge (SIC) rate which is the 90-day bank bill rate plus 3 per cent. The SIC is currently 4.70%.
The maximum amount of contributions made in a particular financial year that may be released is $15,000 with a maximum of $30,000 (total) per eligible individual. This means a couple saving for a first home could contribute up to $60,000 combined.
All associated earnings plus any voluntary concessional contributions in a withdrawal will be taxed at the individual’s marginal tax rate with a 30 per cent non-refundable tax offset. Any non-concessional contributions will not be taxed but again the associated earnings on these contributions will be taxed.
How will it benefit your client?
The government have released a First Home Super Saver Scheme – Estimator which indicates the potential benefit of the scheme. In summary, some of the benefits can include:
- Reduction in personal tax – investment earnings will be taxed within the super environment and not in your client’s personal name. In additional voluntary contributions can in the form of personal deductible contributions and salary sacrifice which will reduce your client’s taxable income.
- Better budgeting – entering a salary sacrifice arrangement can help your client’s budget via ‘forced savings’. In addition, the associated earnings formula provides a relatively stable return which is higher than what can be achieved on a term deposit.
Planning opportunities for advisers and clients
The FHSSS will present additional planning opportunities for advisers and their clients. The change will be particularly appealing amongst younger clients who are more likely to be saving for a first home. By aligning super with the immediate goal of home ownership younger people will likely become more interested in super. This is hopefully the start of a long term interest or engagement with their super for building wealth.
Measure 2: Downsizer contributions
Senior homeowners looking to sell their family home may look to take advantage of the Downsizer Contributions measure which has now passed the Senate. This legislation is contained in Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 1) Bill 2017.
This measure will allow individuals aged 65 years or over to make contributions of up to $300,000 from the proceeds of selling their current or former main residences (owned by the individual or their spouse for at least ten years) to their super accounts.
The eligible main residence needs to be sold on or after 1 July 2018. If a client sells their main residence prior to that date, the downsizing contribution will not apply under the proposed rules.
