What the Budget update on housing affordability means for you
Buying your first home, no matter how old you are at the time, is a big achievement. Among a raft of initiatives designed to tackle housing affordability in this year’s Budget, the announcements of the First Home Super Saver Scheme and the exemptions for downsizing both offer valuable tax benefits. While these measures haven’t passed the Senate yet, for savers at either end of the housing journey, it’s worth considering what they could mean for you and your family.
Tax concessions to help first home buyers
For most first home buyers, saving the required deposit is the biggest hurdle. The First Home Super Saver Scheme is designed to help individuals and couples save more quickly by allowing voluntary contributions made to super after 1 July 2017 to be used for a home deposit.
Amounts will be taxed at 15 per cent on the way into super and withdrawals will be taxed on a sliding scale between zero and 17 per cent, depending on your personal marginal tax rate. No matter what your marginal tax rate is, a 30 per cent tax offset will be applied, so effectively, first home buyers would pay less tax compared to saving in their personal name. There is a $15,000 per year limit on how much an individual could contribute, to a total limit of $30,000. First withdrawals are scheduled to be allowed from 1 July 2018, but only the voluntary contributions plus the deemed earnings on those contributions would be available. Superannuation Guarantee contributions cannot be withdrawn.
$30,000 wouldn’t pay the stamp duty on an average house in Sydney or Melbourne
House prices today make it very hard for first home buyers to get into the market and although this scheme alone is not going to be enough to cover a deposit in many capital cities, savers could use this to boost their savings in addition to other strategies. And it all adds up. For instance, a wage earner on about $80,000 who maximises the total limit of $30,000 could save $5,000-$6,000 more with this initiative compared to saving in their personal name. You can calculate what savings may be possible with the government’s First Home Super Saver Scheme Estimator.
Apart from the first year, there’s no minimum or maximum savings period to meet before the money could be used
Apart from the first year, there’s no minimum or maximum savings period to meet before the money could be used. Plus family members could help the first home buyer to make a non-concessional contribution into the account. As these types of contributions have already been taxed at personal marginal tax rates, no tax applies on the way in or out of super. If an individual has enough cash flow to get to the $30,000 threshold themselves, it might be more tax effective for any family gifts to be held in their personal name instead.
Savings will revert to ordinary super if they aren’t eventually used to buy a first home
It’s important to think about cashflow and commitments if you or your kids are considering adopting this strategy. This is because a change of mind about using the funds to buy a first home means those contributions would be kept inside super and couldn’t be withdrawn until retirement age – generally, age 60.
Downsizing proceeds won’t count towards the current after-tax contribution limits – it’s in addition to what you can do now
If you’re a retiree who owns your own home, the government also announced a change that may impact on you. Downsizing is a very complicated decision – both financially and emotionally. This proposal aims to help those who are wanting to downsize to make that decision a little bit easier. If you’re over 65 and planning on selling the family home, as long as you’ve lived in it for 10 years or more you can put up to $300,000 each from the proceeds into super.
This is a win because currently, once you’re between 65 and 74, you must meet a work test to contribute to super, and over 75 you can’t make any personal contributions. This proposal removes those hurdles for contributions that come from downsizing proceeds.
There were no changes to the existing exemptions that age pensioners have if they downsize, but this new initiative may allow flexibility to help people who hold the Commonwealth Seniors Healthcare Card, to try and protect their eligibility. As there are finer details to check and be aware of before making changes, consider getting advice.
Thankfully there were no major changes introduced to super, which means you can focus on making decisions in time about the existing super changes that will take effect from 1 July 2017.
This insight may contain general financial advice and was prepared without taking into account your objectives, financial situation or needs. Before acting on any advice, you should consider whether the advice is appropriate to you. Seeking professional personal advice is always highly recommended. Any forward looking statements are based on current expectations at the time of writing. No assurance can be given that such expectations will prove to be correct.
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