The budget measures which use superannuation to address housing affordability have been released, raising further queries about both the effectiveness of the measures and whether they will benefit the intended taxpayers.
In the federal budget this year, the government announced that first home buyers would be able to use their super to save for a deposit, and those downsizing a home would be able to contribute the proceeds to super.
The draft legislation for the policies have now been released, which you can read in full here.
The government has remained true to its budget papers with the draft legislation, however, there are some facets of the draft which are likely to raise questions.
For example, the draft papers indicate you don’t have to ‘downsize’ in order to be eligible to contribute the proceeds up to the downsizer contribution cap, SuperConcepts’ Peter Burgess explained to SMSF Adviser.
“After selling your home you are not required to make any subsequent purchase and you can move into any suitable living situation, including into retirement communities, aged care or a smaller property,” Mr Burgess said.
Mr Burgess also noted that, unlike the family home which is exempt from Centrelink’s asset test calculations, downsizer contributions will not be exempt.
“So it remains to be seen how popular this new measure will be,” he said.
As expected, the government also confirmed in the draft that, houseboats, caravans and other mobile homes will be excluded from the definition of a qualifying dwelling, as will an overseas dwelling.
For SMSFs specifically, Mr Burgess said it will be important for SMSF trustees to ensure the contribution has satisfied all the relevant conditions before accepting the contribution, given these types of contributions will be exempt from the contribution caps.
“If later on it’s discovered that the contribution didn’t meet the relevant conditions to be a downsizer contribution, it could lead to a significant breach of the member’s contribution cap,” he said.
In relation to the provisions made for first home buyers — which will allow individuals from 1 July 2017 to make voluntary contributions of up to $15,000 per year and $30,000 in total to their superannuation account to purchase a first home — the effectiveness of the policy as a housing affordability measure is still up for debate.
“There is no doubt that the First Home Super Saver Scheme is a tax effective way to save for a deposit. Realistically, however, the benefit of the scheme will really only pay for say the legal fees as opposed to making a huge difference to a deposit, particularly in the Sydney in Melbourne markets,” said Perpetual’s Colin Lewis.
“Super law is complex, you are constrained by the contribution caps which will limit high income earners on the amount they can contribute for this purpose and low income earners may not have the capacity to put aside up to $15,000 per annum,” he said.
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