Following an upheaval in Budget 2016-17, superannuation was limited to only minor adjustments this year, to the relief of retirees everywhere.
Small, positive changes to assist retirees looking to downsize, and first home buyers have left individuals with the confidence that the superannuation system hasn’t yet again been subject to change.
As part of an extensive housing affordability package, individuals 65 and over will be able to contribute up to $300,000 as a non-concessional contribution to superannuation from the proceeds of the sale of their primary residence. The real benefit of this for many is that the contribution can be made without consideration of the new $1.6 million total superannuation balance test, the work test restrictions or any concerns with breaching the non-concessional cap. Importantly, the property must have been owned for 10 years or more to be able to access the concession, and the contribution may be made for both members of a couple who own the home.
While this appears to be a move in the right direction towards addressing the housing affordability issues, it may not result in the property availability that is being desired.
First Home Super Saver Scheme
In an attempt to assist younger people to set foot in the housing market as homeowners, Budget 2017-18 offers the opportunity for individuals to make additional salary sacrificed contributions to superannuation to help towards a house deposit. Contributions up to $15,000 per year within the existing caps can be made, up to a total of $30,000. The positive for many is the lower tax rate of 15% applies to contributions and earnings, with withdrawals (including associated earnings on the deposits) only attracting tax for those on tax rates of above 30%.
Although the initiative may allow people to build a deposit faster in a tax effective environment, it is only a small portion of the overall savings they may need to buy their house.
Craig and Sharon are retired, both over 65 and looking to sell their $1.2 million property overlooking the coast. Craig has $1 million in his superannuation fund, while Sharon has $1.7 million in her superannuation fund. They have been toying with the idea of selling their house but were not sure about what to do with the additional proceeds. Without the changes announced in Budget 2017-18, neither member would be able to make additional contributions to superannuation.
Under these announcements, both Craig and Sharon will be able to contribute up to $300,000 to their superannuation funds, without having to consider:
- Needing to meet the work test prior to making a contribution;
- Whether Craig or Sharon has a total superannuation balance of $1.6 million or more.