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Super changes: What you need to know

Bessie Hassan | Money Expert at finder.com.au

To improve the sustainability of Australia’s super system, the government announced a series of super changes in the May 2017 budget. The new tax rules include tax offsets for spouse contributions as well as changes to non-concessional contributions.

As housing affordability has been a contentious issue in the Australian property landscape for some time now, the key May 2017 budget announcements focused on solving the nation’s affordability crisis via changes to the super sector.

Below, we’ll outline the key budget announcements that will affect super and the implications this may have for you.

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Ageing Australians to “downsize” and make contributions to super

One of the key super policies announced encourages Australian seniors to “downsize” their living arrangements and contribute the sale proceeds to their super fund.

Also read: Budget 2017 – Super diverted to savings to tackle housing crisis

The proposal, announced in May 2017, will allow Australians aged 65 years and over to downsize their home and make non-concessional contributions to their super of up to $300,000 from the proceeds of the sale. The $300,000 limit is applied to each person, which means a couple can make contributions up to a combined amount of $600,000.

In theory, this may provide an incentive for Australian seniors to sell their houses and downsize, which could create greater supply of housing. This in turn could cool the property market.

To be eligible for the downsizing cap, the property must be the seller’s principal place of residence and they must have owned the dwelling for at least 10 years.

Although the policy is designed to improve housing affordability, some are sceptical about the impact it will have. While it provides older Australians with more flexibility to downsize and free up their funds, it may not have a drastic impact on house prices.

It’s worth pointing out that some Australian households may be reluctant to downsize and make contributions towards their super because they may miss out on the age pension. That is, it will affect the age pension asset test which means they may no longer qualify for the pension.


First Home Super Saver Scheme

The second policy influencing the super sector is the First Home Super Saver Scheme. This policy will allow people to make extra contributions to their super at a lower tax rate and allow them to withdraw these contributions.

This is how it will work. First-time home buyers can make voluntary contributions to their super to save for a deposit. They can save up to $15,000 per year up to a total of $30,000. These contributions will be taxed at a competitive rate of 15%. When the homebuyer wants to withdraw their funds for the deposit, the money will be taxed at marginal tax rates, less a 30% offset.

Also read: Wage Woes May Leave Australians Struggling to Make Ends Meet

In a low-rate environment, the scheme could be more tax effective compared to having funds in a standard savings account. The government believes this may increase the amount of deposit saved by 30% on average, which is promising.

However, keep in mind that the new scheme may not help first-time home buyers get a whole deposit. In many of Australia’s capital cities, especially those on the eastern coastline, $30,000 per person may not make up the 20% deposit you’d need to avoid paying mortgage insurance.

Assuming Parliament passes the proposals, these schemes may make some headway towards addressing housing affordability by allowing Australian seniors greater flexibility and by assisting first-time home buyers to get a foothold on the property ladder, but there’s still a long way to go.

To learn more about the new super rules, check out the ATO website.