’Fairness’, ’security’ and ’opportunity’ were the words Treasurer Scott Morrison used to characterise his second Budget. The benefit of more favourable global economic conditions means the budget doesn’t need to bite as hard as recent Budgets have proposed and there is also a clear intention to spread the task of ’budget repair’ across the community more generally.
In contrast to last year’s budget, which saw the biggest shake-up to super in a decade, the 2017 Budget proposes using super as a tool to help tackle issues of housing affordability and supply. Two significant initiatives intertwine home ownership with the tax-advantaged power of super.
Super savings boost for first home buyers
The ’First Home Super Savings Scheme’ uses the tax advantages of super to help first home buyers. From 1 July this year you’ll be able to use your super to turbocharge your saving for a home deposit by contributing pre-tax earnings into your super fund, up to a $30,000 total limit. The limit in any one year is $15,000. Bear in mind the $25,000 concessional cap may limit how much you can put in, depending on how much you earn, as your 9.5% employer contribution eats into this cap.
These contributions and the earnings they generate are taxed at the favourable rate of 15%. When you buy your first home, these contributions can be withdrawn to help fund the deposit. In addition, this measure allows you to withdraw an additional amount of your balance calculated at a rate stated by the government, to account for earnings within your fund.
Withdrawals - which can be made any time after 1 July 2018 - will be taxed 30% below your marginal tax rate. The Treasurer says the boost provided by super over a typical deposit account in this way will accelerate savings by ’at least 30%’. Couples saving for a home can tip in $60,000 jointly into super to reach their deposit goal.
The government gives an example of how the scheme can work:
Michelle earns $60,000 a year. Using the scheme she salary sacrifices $10,000 of her pre-tax income into her superannuation account, boosting her balance by $8,500 after the 15% contributions tax. After three years, she can withdraw $27,380 including the earnings on those contributions, paying tax of $1620, leaving her with $25,760 for her deposit. That works out to about $6240 more than if she had saved in a standard deposit account.
Super incentive for boomers to downsize
At the other end of the housing chain, homeowners aged 65 and over will be incentivised to trade down to a smaller home. The thinking behind this idea is to free up housing stock that can have a knock-on impact right down the chain, by encouraging empty nesters to ’right-size’ their home.
Boomers will be able to make a non-concessional contribution of up to $300,000 from the sale of their principal residence into their superannuation fund, so long as they have lived in their home for at least 10 years.
The downsizing contributions will not count towards the existing contribution caps and home-owning couples will be able to take advantage of the measure from the same home to transfer up to $600,000 into super. There’s also no requirement to meet the work test.
Other major news announced in the 2017 Budget include:
- • Projections to return to surplus in 2020
- • Increases in the Medicare Levy
- • A major Bank Levy of 0.06% on liabilities for the Big Four plus Macquarie
- • Extending the immediate deductibility for small business
- • $75 billion of ’good debt’ poured into infrastructure over the next decade