1. Contributing the Proceeds of Downsizing to Superannuation
2. First Home Super Saver Scheme
Here is a summary of the key points from the draft legislation:
Contributing the Proceeds of Downsizing to Superannuation
This part of the draft legislation would allow certain individuals to contribute up to $300,000 of the proceeds of the sale of their main residence to their superannuation account. It would apply to proceeds from contracts for a sale entered into on or after 1 July 2018.
To be eligible for this measure the following conditions would need to be satisfied:
- The individual must be aged 65 years or older at the time the contribution is made;
- The contribution must be in respect of the proceeds of the sale of a qualifying dwelling in Australia that either the individual or their spouse owned for at least 10 years up to the disposal;
- The disposal of the dwelling must have qualified (or would have qualified) for the main residence CGT exemption in whole or part;
- The contribution must be made within 90 days of the disposal of the dwelling, or such longer time as allowed by the Commissioner;
- The individual must choose to treat the contribution as a downsizer contribution, and notify their superannuation provider in the approved form at the time the contribution is made; and
- The individual cannot have had downsizer contributions in relation to an earlier disposal of a main residence.
In the case of a couple, both spouses could individually contribute up to $300,000 potentially allowing for a total contribution of up to $600,000. Note that the couple are not required to jointly own the house.
Downsizer contributions will not be not counted toward contribution caps and will be unaffected by the $1.6 million total superannuation balance test that applies to making non-concessional contributions.
It is important to note that the Government have stated there will be no exemption to the asset test in relation to the Age Pension. Therefore if an individual is receiving the Age Pension they will need to be very careful prior to selling their main residence as it may affect their entitlement to Age Pension payments.
First Home Super Saver Scheme (FHSSS)
The FHSSS aims to allow individuals who are saving for their first home to take advantage of the concessional taxation arrangements that apply to the superannuation system. Under this scheme first home savers who make voluntary superannuation contributions will be permitted to withdraw an amount determined by the Commissioner for the purpose of purchasing their first home.
These voluntary contributions will include salary sacrifice and direct personal contributions (both concessional and non-concessional). Therefore, an individual could potentially claim a tax deduction for the contributions made. It should be noted that contributions made under this scheme would be subject to the individual’s contribution caps. The maximum amount of contributions that could be counted towards release under the FHSSS are $15,000 per financial year and $30,000 in total.
If the draft legislation becomes law the FHSSS would apply to voluntary contributions made in the 2018 financial year and later financial years, while the start date for releasing amounts under this scheme would be 1 July 2018.
The maximum amount that could be released would be determined by the Commissioner and would include the voluntary contributions eligible to be released (less any applicable tax) and notional associated earnings relating to these contributions.
To be eligible for the FHSSS an individual:
- Must never have held an interest in a CGT asset that is taxable Australian real property;
- Must be aged 18 years or older
- Must not have previously requested that a FHSSS release authority be issued.
To initiate the release process, individuals would need to request a first home super saver determination from the Commissioner using an approved form. After the determination was received by an individual they could then request the Commissioner issue a release authority in relation to their superannuation interests. Amounts released under the FHSSS would be subject to concessional tax treatment and would be paid by the superannuation fund to the Commissioner, who will withhold any tax payable before paying it to the individual. The individual will be required to include any amounts released that relate to concessional contributions and notional associated earnings in their individual tax return and will be entitled to a 30% non-refundable tax offset in relation to this amount.
Individuals who do not purchase their first home within a specified period (usually 12 months) will be required to either recontribute an amount back to superannuation, or pay an amount of tax to unwind the concessional tax treatment that applied on release.
Contributions that are made in respect of defined benefit interests or made to a constitutionally protected fund are not eligible to be released.
If you have any questions in relation to the draft legislation please contact Pitcher Partners.
Any financial product advice is provided by Cathi Norman (Authorised Representative No. 001252586) as a sub-authorised representative of Pitcher Partners SA Financial Pty Ltd, AFSL No. 487781. The advice provided is general in nature and is not personal financial product advice. The advice provided has been prepared without taking into account your objectives, financial situation or needs and because of this you should, before acting on it, consider the appropriateness of the advice having regard to your objectives, financial situation and needs. You should carefully read and consider any Product Disclosure Statement (PDS) that is relevant to any financial product that has been discussed before making any decision about whether to acquire the financial product.