In line with the 2017-18 Federal Budget, measures are currently being introduced through Parliament to improve housing affordability. These changes include: enabling first home buyers to access their super to save up for their first home, and encouraging those over 65 years of age to sell their main residence and ‘downsize’ by allowing proceeds of up to $300,000 to be contributed into their super. The new laws are expected to be finalised soon.
The First Home Super Saver Scheme (FHSS Scheme) has been developed to encourage first home buyers to save for a deposit through making super contributions and later withdrawing the funds for the purposes of purchasing their first home (and therefore gain access to a 30% tax offset). From 1 July 2017, individuals can start to make contributions into super for these purposes. Amounts can only be released from 1 July 2018 and individuals can only access the scheme once.
In order to access the FHSS Scheme, individuals must obtain a first home super saver determination (FHSS determination) from the Commissioner of Taxation (Commissioner). To request an FHSS determination an individual:
- must use the approved form
- must be aged 18 years or older
- must never have previously owned real estate in Australia in part or in whole; never held a lease of land in Australia for a term of 50 years or more, nor held a ‘company title interest’ in land in Australia
- must not have previously made a release authority request under the FHSS Scheme.
How much can be released?
The maximum amount of super contributions which can be counted for release is up to $15,000 in each financial year and a total maximum of $30,000 under the FHSS Scheme (all amounts released must be applied to the single ‘first home’ purchase). Each individual will have a ‘maximum release amount’ specified in their FHSS determination.
The amount eligible to be released will be the total of the individual’s eligible non-concessional contributions and 85% of their eligible concessional contributions (representing the withholding of 15% tax) made since 1 July 2017.
To be eligible for release, a contribution must be voluntary, have been a concessional contribution or a non-concessional contribution and must fall within the concessional and non-concessional contributions caps and must be made for the purposes of the FHSS Scheme.
Once the determination is obtained a release authority can be requested from the Commissioner seeking a release of eligible contributions. After a release authority is made, the super fund will pay the funds to the Commissioner who withholds any tax payable and the balance is then released to the individual.
The individual will have a specified time to purchase their first home. If they do not purchase their home within this time they can either recontribute the amount into super or pay the applicable amount of tax to unwind the concessional treatment applying to the funds by the super system (i.e. 20% tax on the actual amount released).
Does your super trust deed allow release of funds in this way?
Individuals holding funds in an SMSF should ensure their trust deed is drafted in such a way that allows trustees to release funds to members as anticipated by the FHSS Scheme. If it does not – then individuals should consider updating or amending their deed.
‘Downsizer’ Contributions Scheme
The Downsizer Contributions Scheme (DC Scheme) is being introduced to encourage home owners to sell their main residence as a means of freeing up the market for buyers seeking larger homes. The DC Scheme allows qualifying individuals to make a contribution of up to $300,000 into their super account where they sell a main residence (which is either owned by the individual or their spouse) in order to ‘downsize’ (‘downsizer contribution’). A downsizer contribution is not counted towards an individual’s contributions caps. This means the individual is not subject to an annual cap of $100,000 and does not require the individual to have a total super balance under $1.6 million before making the contribution. The changes will apply to contracts for sale of a main residence entered into on or after 1 July 2018.
The total amount that can be contributed is the lesser of $300,000 and the amount of the individual’s share of the proceeds of sale. For a contribution into a super account to qualify as a downsizer contribution, the following conditions must be satisfied:
- the person making the contribution is aged 65 or older at the time of the contribution
- the contribution must be sourced from the proceeds of sale of the individual’s main residence in Australia
- the main residence must be owned (either by the individual or their spouse) for at least 10 years
- any gain or loss on the dwelling must qualify for the Capital Gains Tax exemption in whole or in part
- the contribution to super must be made within 90 days of settlement of the sale
- the individual must choose to treat the contribution as a downsizer contribution by completing the approved form at the time of the contribution
- the individual must not have previously made a downsizer contribution.
Does your super trust deed allow contributions in excess of the contributions caps?
Individuals who hold funds in an SMSF should ensure their trust deed is drafted in a way which permits members to make contributions in excess of their contributions caps and that the trustee is not required to remove these funds from super if they exceed the caps.