Last night, Treasurer Scott Morrison delivered the 2017 Budget and this time Superannuation was not the headline. Instead the focus was on housing affordability measures and taxing the big banks.
After the significant level of changes to the superannuation regime in 2016, it was to be expected that there would little more in the way of change, with industry associations publically urging for a period of stability in the Superannuation sector. However, some minor superannuation measures were announced, some of which had been flagged in the lead up to the Budget. The focus in the lead up to the budget was housing affordability – particularly for first home buyers.
Superannuation and housing affordability
Two superannuation measures have been included as part of the housing affordability package, namely:
- Voluntary concessional contributions, as well as non-concessional contributions, to superannuation made by first home buyers from 1 July 2017 may be withdrawn for a first home deposit, along with associated deemed earnings.
- From 1 July 2018, a person aged 65 or over will be able to make a non-concessional contribution of up to $300,000 from the proceeds of selling their home. These contributions will not be subject to any age or work tests and will be in addition to any other voluntary contributions made under existing contribution rules.
The budget documents explain this change as impacted by a sustained period of housing growth in Melbourne and Sydney which has led to many delaying the purchase of their first home. The scheme is loosely based on the Rudd Government’s first home saver account which was introduced in 2008 but abandoned by the Abbott government. This scheme will operate in a different manner in that it will be administered by the Australian Tax Office (“ATO”) which will determine the amount of contributions that can be released. The ATO will instruct Superannuation Funds to make payments as required. There will be no age limit on who can contribute.
This is a positive initiative where first home buyers can save for their first home through a well-managed concessional taxed vehicle and take control of their superannuation – at a younger age.
Superannuation fund merger relief
The Government announced an extension of the current tax relief for superannuation fund mergers. The measure, due to expire on 1 July 2017, will be extended to 1 July 2020 and is intended to encourage further industry consolidation.
Limited recourse borrowing arrangements
The Government will improve integrity by including limited recourse borrowing arrangements (LRBA) in a member’s total superannuation balance and transfer balance cap. The measure is effective from 1 July 2017.
Integrity of non-arm’s length arrangements
From 1 July 2018, the Government will address other integrity concerns by reducing opportunities for members to use related party transactions on non-commercial terms to increase superannuation savings. The non-arm’s length income provisions will be amended to ensure expenses that would normally apply in a commercial transaction are included when considering whether the transaction is on a commercial basis.
There were a number of announcements impacting housing affordability. Two tax driven measures will encourage investment into affordable housing. Firstly, from 1 January 2018, the CGT discount will be increased from 50 per cent to 60 per cent for resident individuals investing in qualifying affordable housing. The Government will also enable Managed Investment Trusts (MITs) to invest in affordable housing for income years commencing on or after 1 July 2017. Under the current law, the ATO has generally taken the view that investment in residential property is primarily for the purpose of deriving a profit on disposal, and therefore not eligible for the MIT tax concessions which apply to passive investments only. The MIT will be able to acquire, construct or redevelop the property but must derive at least 80 per cent of its assessable income from affordable housing. Qualifying housing must be provided to low to moderate income tenants, with rent charged at a discount below the private rental market rate.
In summary, no massive changes in Superannuation after the massive changes in 2016, however a huge focus on housing affordability as expected.
Ivan Filipovic is a leading SMSF Specialist Advisor with Redwood. Ivan has over 17 years provides a range of services across all sectors of Self-Managed Superannuation, Wealth, Property and Finance with an emphasis on long term wealth strategies. Ivan provides detailed strategies at https://redwoodadvisory.com.au/. Ivan is a Chartered Accountant, ASIC registered auditor, Mortgage Broker and Licensed Property Professional.