Despite no major new superannuation measures in the 2017-18 Federal Budget, the Government continues to tinker with Superannuation rules. In particular, the introduction of the $300K additional non-concessional contribution for older downsizers creates an exception to the recently-introduced Total Superannuation Balance $1.6m cap, and the concessions for first home-buyers to use super to save for a deposit sends mixed messages about the purpose of superannuation.
Merging super funds
The current tax relief for merging superannuation funds will be extended until 1 July 2020. This measure supports fund mergers and industry consolidation ensuring super fund members’ balances are not reduced by tax when superannuation funds merge.
Limited recourse borrowing arrangements (LRBA)
In an integrity measure aimed at preventing avoidance of contributions caps, LRBAs will be included in a member’s total super balance and the $1.6m pension transfer balance cap from 1 July 2017. This may impact on the ability of some individuals to make future non-concessional contributions, and the amount that can be held in a pension account.
Note that the measure only applies to new limited recourse borrowing arrangements implemented once the amending legislation has been passed.
Non-arm’s length income (NALI)
NALI provisions will be tightened from 1 July 2018. The rules will affect non-arm’s length transactions that currently result in a superannuation fund incurring significantly lower transaction costs compared to arrangements entered on a genuine commercial basis. These will now be subject to NALI rules, consequently preventing members from avoiding the pension balance cap and total superannuation balance threshold.
As part of the government’s housing affordability measures, Australians aged 65 and over will be able to make a non-concessional contribution of up to $300,000 from the proceeds of selling their family home. The measure (effective 1 July 2018) will apply to a principal residence owned for the past 10 years or more.
Both members of a couple will be able to take advantage of this measure for the same home. The work test and the superannuation non-concessional contribution caps will not apply.
Social security (e.g. age pension) recipients, should note that any change in the person’s superannuation balance will still count towards the Age Pension assets test. Therefore, pensioners will need to evaluate the impact of the downsizing contribution on pension eligibility.
First Home Super Saver Scheme
First home buyers will be allowed to withdraw voluntary contributions they make to superannuation, along with associated deemed earnings, for the purpose of making a first home deposit.
The scheme applies to contributions made from 1 July 2017; withdrawals can be made from 1 July 2018. The maximum amount that can be contributed, and later withdrawn, is $15,000 per year, and $30,000 in total. Both members of a couple can take advantage of this measure and combine savings for a single deposit to buy their first home together.
Note that this scheme does not allow any additional contributions to be made over and above the existing contribution caps.
While the scheme will help first home buyers save a deposit sooner than they otherwise could, we do have concerns regarding muddying the retirement outcomes addressed through our superannuation system.
More about the 2017-18 Federal Budget:
- Economic outlook, infrastructure and development
- Personal taxes largely unchanged; Medicare levy increased
- Housing affordability and availability top budget items
- Business will benefit from planning
- Read about the key Federal Budget announcements we think will matter most to our readers in our full Federal Budget Wrap-Up