- Posted by: Nick Lucey
- Category: Federal Budget, Legislation
First Home Super Saver Scheme and Downsizer Contributions
In the 2017 Federal Budget, two of the key proposals were assistance for first home buyers saving for a deposit and concessions for elder Australian’s downsizing their homes. These two bits of legislation have been debated through out the year and a bill has finally passed on both.
First Home Super Saver (FHSS) Scheme
This scheme allows people who are saving for their first home to take advantage of the concessional tax arrangements that apply to the super system. Under this scheme, an eligible first home saver makes voluntary contributions into the super system under the existing contribution rules and caps. They can subsequently withdraw (up to certain limits) these contributions, together with the associated earnings, to assist with the purchase of their first home. The withdrawn amount also attracts concessional tax treatment.
- The scheme has several tax benefits for people saving up for a first home
- Eligible first home savers can contribute a maximum of $15,000 per year and maximum of $30,000
- The maximum that can be withdrawn is limited to $15,000 of voluntary contributions previously made in any one financial year, and a total $30,000 of contributions made across all previous years from 1 July 2017 onwards.
- There are strict eligibility rules to be able to use the scheme
- Valid contributions are voluntary contributions and can include both concessional and non-concessional super contributions made from 1 July 2017.
- Invalid contributions include; Mandatory employer contributions e.g. super guarantee contributions, contributions to defined benefits funds and to constitutionally protected funds and spouse contributions
This measure allows a person aged 65 or more to use the proceeds from one sale of a former main residence to make super contributions of up to $300,000. These ‘downsizing’ contributions are not tax deductible and can be made regardless of caps and restrictions that otherwise apply when making super contributions.
- The legislation does not require the purchase of another home.
- A maximum contribution of $300,000 per person is permitted. However, this is also potentially limited by the actual sale proceeds of the house. For example, if a house is sold: o For $250,000 – the maximum contribution will be $250,000, spread between two members of a couple as applicable, or o For $450,000 – the maximum contribution of $300,000 is allowable for one person, with the other person contributing up to $150,000
- No special Centrelink means test exemptions apply to the downsizing contribution. However
- when a Centrelink client sells their residence, the sale proceeds can typically be exempted from the assets test for up to 12 months to the extent that the sale proceeds will be used to purchase another residence (deeming rules still apply to the sale proceeds for the income test, depending on how they are spent/invested).
- It would appear that this exemption can also apply when the proceeds are contributed to super, as long as the client’s intention is to use the proceeds to purchase another residence.
- Also, with the increase in Age Pension qualifying age progressively to age 67 there may be additional scope for those below their Age Pension qualifying age to use the ‘sheltering strategy’. Under this strategy, assets are contributed to the superannuation fund of someone below their Age Pension age where superannuation is exempt from Centrelink means testing.
- The property that is sold must be in Australia and not be a caravan, mobile home, or houseboat,
- The property that is sold must be in Australia and not be a caravan, mobile home, or houseboat
- The property must have been owned by the person, or their spouse, for at least ten years prior to disposal
- Even if only one member of a couple was the property owner, both will be eligible to contribute up to $300,000 each
- The property must be eligible for at least a partial capital gains tax (CGT) main residence exemption.
- Only sale contracts entered into (exchanged) from 1 July 2018 are eligible
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