Compared with the drama and restrictions in last year’s controversial Budget, superannuation came through mildly this year. There were two major changes, which on the surface were encouraging, but the words ‘devil’ and ‘detail’ soon began to surface.
Here’s a look at the two policies with a few stings in the fine print.
1. Super contributions from proceeds of downsizing a home
People aged 65 or older will be permitted to make non-concessional contributions to super up to $300,000 each from the proceeds of the sale of a family home. Some of the details include:
- No restrictions if the person already has more than $1.6 million in super
- No work test or upper age limit
- Applies per person, making it a potential $600,000 more in super per couple
- Home must have been owned for at least 10 years, which minimises the financial planning creativity of buying a home to sell with the proceeds going into super.
Questions are already arising, such as:
- Will moving money out of the exempt asset of a family home reduce or remove age pension entitlements and negate the benefits of having more in super?
- What happens if the family home is in the name of one member of a couple?
- A person may have substantial non-super assets and there is no requirement that the new home be a ‘downsize’, so can someone buy a more expensive house with other resources while putting sales proceeds of the old house into super?
- Will it be possible to repeat the exercise every 10 years?
This change appears little more than opening the door to more money going into super from people who would have sold their home anyway, while freeing up relatively little additional supply.
Remember that most people below the $1.6 million transfer balance cap can still place up to $300,000 into super in a year after 1 July 2017 (using the three-year bring-forward rule) even without this new rule. It’s good for the political viewpoint of seeming to do something about home affordability.
2. First home buyers access voluntary contributions
To increase affordability, first home buyers will be allowed to make voluntary concessional and non-concessional contributions to superannuation which can be accessed to buy a home. Contribution limits are $15,000 per year up to a total of $30,000 per person.
Money withdrawn from concessional contributions will be taxed at marginal personal rates with a 30 per cent tax offset. This measure is available per person, making the total amount a meaningful $60,000 per couple. Of course, this is not a grant, it's a useful tax saving for aspiring home owners who have the capacity to save the required deposit.
However, any amount will contribute to the annual $25,000 concessional cap, so a person earning say $110,000 with a 9.5 per cent Superannuation Guarantee contribution of $10,450 will only have $14,550 left under the cap, not the maximum $15,000.
Of course, any person salary sacrificing up to the $25,000 level at the moment cannot add any extra, but they will be able to access the voluntary contributions if they buy a first home. Contributions will be taxed at 15 per cent, which may be above the person’s personal marginal tax rate (if, for example, the extra contribution money came from a wealthier family member).
The parking of money in a concessionally taxed vehicle benefits high income earners the most. A $10,000 salary sacrifice would place $8500 in accessible super rather than paying out say 39 per cent (marginal tax rate plus Medicare Levy of 2 per cent) or $3900 in tax and having only $6100 left over.
There will be mixed reactions to this policy, varying from those who praise the affordability assistance to arguments that anything that increases demand for houses will only bid up prices, and it’s the supply side that needs addressing. While something had to be done on affordability in this Budget, the previous First Home Saver Account was not popular and was abandoned in 2015.
What are your thoughts on the 2017 budget?