Heffron | Downsizer contributions and First Home Saver Superannuation Scheme (FHSSS) passed

Downsizer contributions and First Home Saver Superannuation Scheme (FHSSS) passed

The Bills necessary to make both the above measures law have now received Royal Assent.

Both were May 2017 budget measures and will take effect from 1 July 2018.  (Further changes to the Superannuation Industry (Supervision) Regulations 1994 will be required but these do not require a vote in parliament and are expected to progress smoothly.

To very briefly re-cap, the “downsizer contributions” measure is designed to encourage older Australians to downsize their home.  The incentive is that they are allowed to make contributions to superannuation after 65 when they sell an eligible dwelling without meeting a work test and regardless of the size of their existing superannuation balance.  There are of course limits, rules and deadlines but a few features include:

  • Only dwellings sold (contracts exchanged) after 1 July 2018 can be used to trigger eligibility for one of these contributions.  The person does not have to be over 65 when the dwelling is sold (or even when the settlement proceeds are received) but they do have to be over 65 when the contribution is made and there are time limits for making the contribution after sale;
  • The maximum contribution is the sale proceeds of the dwelling, capped at $300,000 (or $300,000 each for a couple);
  • There is no requirement that the contribution actually comes from the sale proceeds or that the sale actually occurs as a result of an intention to downsize (the contributor might in fact buy a more expensive home or even none at all);
  • There are rules around the nature of the dwelling but in most cases any Australian unit or house that has been held for more than 10 years and is at least partially exempt from CGT because of the “main residence” exemption will be eligible
  • The contribution can be made in multiple individual amounts but can only be triggered from the sale of one dwelling

The FHSSS is also related to housing but is generally relevant at the opposite end of the age spectrum.  It is designed to help individuals buy their first home by allowing them to extract some of their superannuation contributions to do so.  The new rules relate only to contributions made on or after 1 July 2017 and it will only be possible to release them from 1 July 2018.  Both personal and employer contributions are eligible for this scheme but in the case of employer contributions, only the amount over and above compulsory (superannuation guarantee) contributions are considered.  There is a maximum (formula) amount and when the contributions are released to the individual, any part that does not relate to the individual’s personal contributions for which they have not claimed a tax deduction (non-concessional contributions) will be taxed – albeit at a concessional rate.  The scheme has been designed so that the tax treatment favours contributing money to superannuation and then asking for it to be released rather than simply saving it in their own name for most individuals.

Both were promoted as part of the Government’s strategy to ease pressure on housing prices. We expect the downsizer contributions measure to be more useful for most SMSF members and in fact it presents some interesting planning opportunities particularly since there are no upper age or balance limits.  We expect that a great many SMSF members will look to take advantage of the scheme at some point in their retirement, although the potential impacts on social security entitlements and aged care fees will need to be carefully considered.