Below we have outlined some key information coming out of the recent 2017-18 Australian budget.
Housing Affordability & Superannuation
First Home Super Saver Scheme
The Government will help Australians boost their savings for their first home by allowing them to build a deposit inside superannuation.
The issue
Australians are entering the housing market later in life than previous generations. With house prices high, difficulty saving a deposit is a key barrier to getting into the market.
The details
From 1 July 2017, individuals can make voluntary contributions of up to $15,000 per year and $30,000 in total, to their superannuation account to purchase a first home. These contributions, which are taxed at 15%, along with deemed earnings, can be withdrawn for a deposit. Withdrawals will be taxed at marginal tax rates less a 30% offset and allowed from 1 July 2018.
For some people, the First Home Super Saver Scheme could boost the savings they can put towards a deposit by at least 30% compared with saving through a standard deposit account. This is due to the concessional tax treatment and the higher rate of earnings often realised within superannuation.
Many employees will be able to take advantage of salary sacrifice arrangements to make pre-tax contributions.
Individuals who are self-employed or whose employers do not offer salary sacrifice can claim a tax deduction on personal contributions, meaning savings effectively come out of pre-tax income.
Voluntary contributions under this scheme must be made within existing superannuation caps. The total concessional contributions an individual can make, from both compulsory employer contributions and voluntary contributions, including those made under the scheme cannot exceed $25,000 in 2017-18.
Example – Boosting Michelle and Nick’s first home deposit
Michelle earns $60,000 a year and wants to buy her first home. Using salary sacrifice, she annually directs $10,000 of pre-tax income into her superannuation account, increasing her balance by $8,500 after the contributions tax has been paid by her fund. After three years, she is able to withdraw $27,380 of contributions and deemed earnings on those contributions. Her withdrawal is taxed at her marginal rate (including Medicare levy) less a 30% offset.
After paying $1,620 of withdrawal tax she has $25,760 that she can use for her deposit. Michelle has saved around $6,240 more for a deposit than if she had saved in a standard deposit account. Michelle’s partner Nick has the same income and also salary sacrifices $10,000 annually to superannuation over the same period. Together they have $51,520 that they can put towards a deposit, $12,480 more than if they had saved in a standard deposit account.
In addition:
- The Government is providing an online estimator to help people understand the advantages of saving for a home deposit through superannuation. To access the estimator, head to www.budget.gov.au/estimator.
- The ATO will also be responsible for administering compliance mechanisms to ensure that people purchase their first home after they withdraw from superannuation for their deposit. The Treasury will develop appropriate mechanisms with the ATO, which the Government will consult on before legislating, to deliver integrity while minimising compliance impacts.
- Non-concessional contributions can also be made within the scheme. While these contributions will not benefit from a tax concession, earnings on these contributions will benefit from the concessional rate of tax in superannuation and the higher returns often realised inside superannuation. When non-concessional amounts are withdrawn, they will not be taxed.
Reducing barriers to downsizing
The Government will encourage some older people to downsize from homes that no longer meet their needs and free up housing stock for young families starting out. Older Australians will be provided with greater flexibility to contribute the proceeds of the sale of their home into superannuation, reducing a current disincentive to downsizing.
The issue
Being unable to invest the proceeds of selling their home into superannuation discourages some older people from downsizing. This means many larger family homes sit occupied by only singles or couples. Encouraging downsizing should enable more effective use of the housing stock by freeing up larger homes for younger, growing families.
The details
From 1 July 2018, people aged 65 and over will be able to make a non-concessional (post-tax) contribution into their superannuation of up to $300,000 from the proceeds of selling their home.
The existing voluntary contribution rules for people aged 65 and older (work test for 65-74 year olds, no contributions for those aged 75 and over) and restrictions on non-concessional contributions for people with balances above $1.6 million will not apply to contributions made under this new special downsizing cap.
This measure will apply to a principal place of residence held for a minimum of 10 years. Both members of a couple will be able to take advantage of this measure for the same home, meaning $600,000 per couple can be contributed to superannuation through the downsizing cap.
These new contributions will be in addition to any other voluntary contributions that people are able to make under the existing contribution rules and concessional and non-concessional caps.
Example – Helping George and Jane downsize
George and Jane, both retired and aged 76 and 69, sell their home to move into more appropriate accommodation. The sale proceeds are $1.2 million. They can both make a non-concessional contribution into superannuation of $300,000 ($600,000 in total), even though Jane no longer satisfies the standard contribution work test and George is over 75. They can make these special contributions regardless of how much they already have in their accounts.Example – Helping John and Sarah downsize
John and Sarah, who are still working part-time at age 65, decide to sell the large family home after all the children move out. The sale proceeds are $1.4 million. They are both able to make a non-concessional contribution of $300,000 ($600,000 in total) into superannuation. This is regardless of how much they have in their accounts already. They may also be able to make additional contributions to their superannuation using the sale proceeds under standard contribution arrangements.In addition:
- Any change in the person’s superannuation balance as a result of this measure will count towards the Age Pension assets test.
- Contributions made under this measure will not be exempt from the $1.6 million transfer balance cap. Only people who have remaining transfer balance cap space will be able to convert their contributions into a pension phase account where earnings are tax-free.
- The $1.6 million balance threshold for making non-concessional contributions will not apply to the special downsizing cap. Restrictions on non-concessional contributions for people with balances above $1.6 million will not apply to contributions made under this new special downsizing cap
Funding essential services
Medicare Guarantee Fund
A new Medicare Guarantee Fund will be established to meet the ongoing costs of the Medicare Benefits Schedule and the Pharmaceutical Benefits Scheme.
In this Budget, the Government is providing $1 billion to phase in the reintroduction of indexation for certain items on the MBS, while $1.2 billion will be provided for new and amended listings on the PBS, to provide patients with access to new services and affordable, often lifesaving, medicines.
National Disability Insurance Scheme
The Government will deliver the NDIS. It is committed to fully fund and safeguard the NDIS, ensuring that Australians with permanent and significant disability can exercise choice and control in accessing vital care and support.
From 1 July 2019, the Medicare levy will increase by 0.5% from 2 to 2.5% of taxable income. The additional revenue raised will be directed to the NDIS Savings Fund, along with NDIS underspends and previous contributions to the fund from across government, to ensure the NDIS is fully funded.
Levy for Australian skills training
Businesses employing foreign workers on certain skilled visas will be subject to a new levy to fund training for Australians through the Skilling Australians Fund.
This new approach will introduce an annual foreign worker levy of $1,200 or $1,800 for temporary skilled visas and a $3,000 or $5,000 one-off levy for those on certain permanent skilled visas, depending on the size of the business.
Over the next four years, more than $1.2 billion will be raised from this new levy that will contribute directly to a new Commonwealth-State Skilling Australians Fund to replace the expiring Skills National Partnership.
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