Aiming to make it easier for first home buyers to save for their first property and for people over the age of 65 to downsizeThe federal government has successfully passed legislation that will allow first home buyers to access their tax-exempt voluntary superannuation contributions when saving for a deposit.

On Thursday (7 December), the federal parliament passed elements of the Turnbull government’s housing affordability plan, which was first announced in the budget.

This plan incorporates the First Home Super Saver Scheme (FHSS), which enables first home buyers (FHBs) to access their tax-exempt voluntary superannuation contributions from 1 July 2018, and the rate of deemed earnings (made from 1 July 2017).

The FHSS permits individuals to contribute up to $30,000 (but no more than $15,000 a year) to their superannuation account, with FHB couples eligible to contribute up to $60,000.

It is hoped that the move will “accelerate” deposit saving by up to 30 per cent.

Further, in an attempt to free up homes for younger, growing families, the legislation will provide an incentive for older Australians (65 and over) to downsize, by allowing them to contribute up to $300,000 from the sale proceeds of their current dwelling, to their superannuation.

Both members of a couple aged over 65 will be eligible to make a contribution; meaning a couple can contribute a combined sum of $600,000 to their super.

In order to be eligible, Australians over the age of 65 must have lived in the dwelling they intend to sell for at least 10 years, and can only make contributions after 1 July 2018.

Speaking after the key elements were passed, Treasurer Scott Morrison, stated: “The FHSSS provides a much-needed tax cut to young Australians saving for their first home. From 1 July 2018, first home buyers will be able to withdraw voluntary superannuation contributions they’ve made since 1 July 2017, along with a deemed rate of earnings, to help buy their home. This will give first home buyers a significant leg-up towards saving their deposit, helping them overcome a key barrier for getting into the housing market.

“The downsizing measure removes a financial obstacle from older Australians who are considering moving to homes that better suit their needs.”

He concluded: “The Turnbull government is continuing to deliver on its commitment to ensure all Australians have access to secure, stable and affordable housing.”

Both housing affordability and FHBs have been in the spotlight recently; according to a recent Bankwest report, Australian FHBs are now spending more time saving for deposits before purchasing a home.

The 2017 Bankwest First Time Buyers Report revealed that on average, FHB couples now spend 4.6 years saving for a 20 per cent house deposit of $111,080 on a median priced home; up from 4.4 years spent saving on a deposit of $103,907 in the previous year.

The new legislation, first announced in the Budget, enables prospective first home buyers to save for a deposit inside superannuation through the First Home Super Saver Scheme (FHSSS), allows older Australians to contribute the proceeds of the sale of their family home to superannuation, aims to provide “better target deductions” relating to residential investment properties, and boosts the availability of rental accommodation in the market.

Under the FHSSS legislation, prospective first home buyers can contribute up to $30,000 (up to $15,000 a year within existing caps) into superannuation and withdraw the contributions from 1 July 2018. These contributions, along with deemed earnings, can be withdrawn for a deposit.

Withdrawals will be taxed at a marginal tax rate, less a 30 per cent offset.

According to the Treasury, this will be a “game changer for young Australians trying to get their first place”.

Treasurer Scott Morrison and Assistant Minister to the Treasurer Michael Sukkar said in a joint release: “For most people, the FHSSS will enable them to boost the savings they can put towards a deposit by 30 per cent compared with saving through a standard deposit account.

“This will give prospective first home buyers a significant step up at a time when saving for a deposit is becoming increasingly difficult for many people.”

Downsizing measures

Likewise, the downsizing measure will allow older Australians to use their superannuation to make savings.

From 1 July 2017, people aged over 65 will be able to make an additional non-concessional contribution of up to $300,000 into superannuation when they sell their home (which they’ve held for at least 10 years).

As both members of a couple can utilise this measure, up to $600,000 of contributions may be made by a couple from the proceeds of selling their home.

The ministers said: “Many older Australians will be attracted to take up this concession and in so doing vacate larger properties which no longer suit their needs.

“This will encourage people, who may have been put off by existing restrictions and caps, to move house and free up larger homes for growing families.”

Protecting negative gearing

The government’s “housing integrity measure” aims to restore integrity to the tax treatment of residential investment properties by disallowing claims for travel expense deductions and limiting plant and equipment depreciation deductions to new assets only.

From 1 July 2017, travel costs for individual investors inspecting and maintaining residential investment properties will no longer be deductible.

“This will improve the integrity of the tax system by preventing residential property investors from taking holidays at the taxpayers’ expense,” the Treasury said.

“By limiting plant and equipment depreciation deductions, the government is cracking down on investment property abuse by removing the existing opportunities for capital items to be depreciated by multiple owners in excess of their actual value.”

Following public consultation, the measures now enable investors to claim plant and equipment depreciation deductions in situations where a developer/renovator tenants a property prior to selling it to an investor, provided the property is: purchased by an investor within six months of the property being completed by a developer/renovator; and the developer/renovator has not claimed depreciation deductions.

“Together, the travel and plant and equipment deduction changes will improve the integrity of the tax system and are estimated to generate $800 million in revenue over the forward estimates,” the ministers said.

Vacancy levy

Lastly, a new foreign resident vacancy levy has now come into force and places an annual vacancy charge on foreign owners of residential real estate when property is not occupied or genuinely available on the rental market for at least six months in a 12-month period.

Administered by the Australia Taxation Office, the vacancy charge applies to foreign persons who make a foreign investment application for residential property from 7:30pm (AEST) on 9 May 2017.

The charges aim to increase the number of houses available to live in and provide a financial incentive for foreign owners to make their property available on the rental market.

“Through the comprehensive housing affordability package announced in the Budget, the government is radically improving outcomes across the entire housing spectrum, from first home buyers, to renters, to downsizers, to those in community and affordable housing, and those suffering homelessness,” the joint statement reads.

“This is getting on with it.”

Aiming to make it easier for first home buyers to save for their first property and for people over the age of 65 to downsize.

First home buyers

On Friday, the draft legislation was launched for the First Home Super Saver Scheme (FHSSS) that enables individuals to contribute a total of $30,000 (and a maximum of $15,000 a year within existing caps) into their superannuation in a bid to assist them in saving for a deposit for their first home.

Eligible savers over the age of 18 that are buying real property in Australia for the first time (i.e., those that do not own investment properties, commercial properties or vacant land) will then be able to withdraw the contributions along with deemed earnings in order to help fund a deposit on their first home.

The deposit can cover vacant land (if the land was to be built on), but would not include any premises that is not capable of being occupied as a residence, and would not include houseboats or motor homes.

Pre-tax contributions will be taxed at 15 per cent, while withdrawals will be taxed at marginal tax rates less a 30 per cent offset.

Voluntary contributions made from 1 July 2017 will be eligible for withdrawal (provided all criteria are met) from 1 July 2018.

The maximum release amount will be equal to the sum of eligible contributions and associated deemed earnings.

For example, if a saver made concessional contributions (e.g., through salary sacrifice), they would be able to withdraw 85 per cent of those contributions (reflecting the 15 per cent tax). They would be able to withdraw 100 per cent of any non-concessional contributions.

Deemed earnings calculated using the Shortfall Interest Charge (currently 4.78 per cent) would be based on when eligible contributions are made up until the date release amount is determined.

The consultation draft outlines that those using the FHSSS would have 12 months after releasing the savings to sign a contract to purchase a qualifying home. Those needing longer would be required to ask the ATO for a 12-month extension.

However, if those using the FHSSS do not buy a home in the time period, they will either be required to recontribute the release amount into superannuation, or pay a tax equal to 20 per cent of the amount released from superannuation.

In order to ensure that the property is not bought for investment purposes, the property bought must be occupied “as soon as practicable” and for at least six months of the first 12 months after it is “practicable” to do so.

Downsizing package

As well as the FHSSS, the Treasury has also launched a consultation into its package that aims to “remove the barriers that discourage retirees from downsizing their homes,” and thus “freeing up” the stock of larger houses for young families.

Under the draft legislation, Australians aged over 65 will be allowed to make an exempt contribution to their superannuation after downsizing their family home from 1 July 2018.

Those selling their home will be able to make a non-concessional (post-tax) contribution into their superannuation of up to $300,000 from the proceeds of sale. However, the contributions are limited to proceeds of sale – so those selling their home for less than $300,000 would be limited to contributing the sale amount only.

The Treasury has revealed that existing contribution caps and restrictions will not apply to this downsizer contribution at the time, but the $1.6 million transfer balance cap and Age Pension means test will continue to apply and will count towards total superannuation balance tests in later years.

Existing voluntary contribution rules and restrictions would not apply to this special non-concessional contribution, and both members of a couple could take advantage of the measure (contributing up to $600,000 from the proceeds of selling their home) as long as one of them is on the title.

The measure will apply to homes used as a main residence held for a minimum of 10 years, excluding caravans, motor homes and houseboats.

According to the package, those making a downsizer contribution would not be required to make any subsequent property purchase, but the contribution must be made within 90 days after the home changes ownership (i.e., after settlement).

The Treasury added that there is no general restriction for people opening a superannuation account to make a downsizer contribution should they not currently have one.

Announcing the consultation on Friday, Treasurer Scott Morrison said: “These important measures are part of the government’s comprehensive approach to housing affordability announced in the 2017-18 Federal Budget that aim lower the cost of living for Australians.

“Housing affordability is a major issue affecting many Australians and there is no silver bullet.

“The government’s comprehensive plan will improve outcomes across the housing spectrum – from the homeless and those who depend on social housing to first home buyers and older Australians looking to downsize.”

He called on all “interested stakeholders” to make a submission on the draft legislation, which is available to view on the Treasury website.

[Related: Half of FHBs don’t think super would help secure home]

Narrowing the gap and driving some demand back into the market.

 

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