New rules explained to benefit first home buyers and downsizers

Changes aimed at improving housing affordability have passed through parliament. See what the new rules could mean for you. 

Government proposals to improve housing affordability in Australia were passed through parliament on 7 December 2017.

As part of the amendments, first home buyers will be given a tax concession through the ability to save for a home deposit inside super, while Australians aged 65 and over can dispense the proceeds from the sale of their family home into super.

We look at how these changes could impact on you, bearing in mind that like with all important financial decisions, it’s a good idea to get financial advice before deciding what’s right for you.

Tax concession for first home buyers

From 1 July 2018, eligible first home buyers can withdraw voluntary super contributions (which they’ve made since 1 July 2017), along with associated investment earnings, to put to a home deposit.

How does it work?

Under the First Home Super Saver Scheme (FHSSS), first home buyers that make voluntary contributions of up to $15,000 per year into their super are able to withdraw these amounts, in addition to associated earnings, from their super fund to assist with a deposit on their first home.

If eligible, the maximum amount of contributions that you are able to withdraw under the scheme is $30,000 for individuals or $60,000 for couples.

Voluntary contributions can be made through salary sacrificing from before-tax income, by making personal tax-deductible contributions, or by making personal after-tax super contributions.

When the money is removed, before-tax and tax-deductible contributions are taxed at your marginal tax rate, less a 30% tax offset, while after-tax contributions aren’t subject to tax.

Due to the favourable tax treatment, generally available through super, this scheme intends to assist first home buyers grow their deposit faster.

Things to note

To make a withdrawal under the scheme, you must complete an application to the Australian Taxation Office, an eligible person is only allowed one FHSSS withdrawal in their lifetime.

There will be super contributions which will not qualify and cannot be withdrawn under the scheme, such as super guarantee contributions made by your employer, as well as spouse contributions.

FHSSS amounts that are withdrawn and not subsequently used for a property purchase have to be put back into super as after-tax contributions, or penalties will apply.

The first home buyer must reside at the property for a minimum of six months in the first 12 month period from when it can be occupied.

Additional rules may apply depending on your situation, so make sure you do your research and speak to us before making any final decisions.

Super benefits for downsizers

Currently, people aged between 65 and 75 who would like to make voluntary super contributions have to satisfy a work test, and people over 75 are generally unable to contribute to their super.

From 1 July 2018 that will change. People aged 65 or over can make an after-tax contribution to their super of up to $300,000 using proceeds from the sale of their family home – regardless of their work status, superannuation balance, or contribution history.

Both members of a couple can take advantage of this proposal, meaning up to

$600,000 per couple can be contributed toward super.

How does it work?

Proceeds from the sale of the family home that are contributed into super from this initiative can be made in addition to any other before-tax or after-tax contributions you’re eligible to make.

The government said the goal is to encourage older Australians, where appropriate, to free up homes that no longer meet their needs and make room for younger families.

Things to note

To qualify, the property sold must have been your (or your spouse’s) main place of residence for a minimum of 10 years.

‘Downsizing’ contributions aren’t tax deductible and can be made regardless of super caps and restrictions that otherwise apply when making super contributions.

The property that is sold must be in Australia and does not include caravans, mobile homes, or houseboats.

No special Centrelink means test exemptions apply to the downsizing contribution. Due to this, there could be means testing implications as a result of downsizing, which will need to be considered.

However, additional rules could apply to your situation and as you are also making a big financial decision, which could have implications, it’s worth doing your research and speaking to us first. 

Turnbull Government delivers leg-up for first home buyers and downsizers press release