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Super Stimulus for Residential Housing Market

Super Stimulus for Residential Housing Market

Published on April 20, 2018 by Patricia Monemvasitis and Nathan Gately

Super Stimulus for Residential Housing Market

The new financial year is on the horizon, and for those of you considering entering the housing market for the first time, or downsizing to a lower cost residence, it may be worth noting the “Super Housing Measures” announced in the last Federal Budget, and passed by Parliament in December 2017, take effect from 1 July 2018.

A) First Home Super Saver Scheme

Home ownership is falling out of reach for many younger Australians…. difficulty saving a deposit is a key barrier to getting into the market. That’s why the changes contained in this bill are essential and why we need to act now.” – Michael Sukkar MP, second reading speech.

The Government will assist first home buyers who, from 1 July 2018, may draw up to $30,000 each from voluntary contributions they have made to their superannuation since 1 July 2017 to put towards the purchase of residential property.

Some key points to consider include:

  1. Only voluntary contributions to superannuation can be accessed (compulsory amounts contributed by your employer are not able to be accessed);
  2. Non-concessional (after-tax) contributions may be accessed in full however only 85% of concessional (pre-tax) contributions may be accessed;
  3. A maximum of $15,000 contributed from any one financial year, up to a total amount of $30,000, may be accessed;
  4. Released amounts must be shown on your next tax return and will be taxed at your marginal rate less 30%; and
  5. Couples, siblings or friends can each access their own eligible contributions to purchase the same property.

B) Downsizing Contributions into Superannuation

 “This will help free up housing stock, in particular larger homes, for younger families by reducing barriers to older Australians downsizing form homes that no longer meet their needs.” – Michael Sukkar MP, second reading speech.

The Government is also hoping that allowing people aged 65 and older to make a tax exempt non-concessional one-off contribution of up to $300,000 to their superannuation from the proceeds of selling their residential home will increase the marketable stock of larger houses.

There are a significant number of conditions restricting eligibility, including:

  1. You are at least 65 years old;
  2. You have not previously made a downsizing contribution into superannuation;
  3. The contract of sale was exchanged on or after 1 July 2018;
  4. Your home was owned by you or your spouse for 10 years or more prior to the sale;
  5. Your home is in Australia and is not a caravan, houseboat or other mobile home;
  6. Your home at least partially satisfies the main residence exemption test (the same test that is used to determine capital gains tax liability for post-CGT assets), without regard to whether your home is a pre- or post-CGT asset;
  7. Your downsizer contribution is preceded or accompanied by the requisite form;
  8. You make your downsizer contribution within 90 days of receiving the proceeds of sale; and
  9. Each eligible seller of the same property is entitled to make a downsizing contribution provided (individual and total) contributions do not exceed the (individual and total) sale proceeds.

For those that pass the eligibility criteria, it is worth noting that your downsizer contribution:

  1. is not a non-concessional contribution;
  2. will not count towards your contributions caps;
  3. will count towards your transfer balance cap but can still be made if your total super balance greater than 1.6 million; and
  4. is not tax deductible and will be taken into account for determining eligibility for the age pension.

It remains to be seen whether this scheme provides incentive enough to entice more potential downsizers into the market.

C) Possible Market Implications

An assumption underpinning the logic of these measures seems to be that the price of larger “family homes” will fall as more willing sellers enter the market, and younger families will be in an improved position to buy them.

This logic appears to not only overlook the impact property investors might have by soaking up this unlocked housing stock, but also the financial capacity of potential first home buyers to afford to make voluntary superannuation contributions of any meaningful magnitude (let alone set aside further savings for the rest of their deposit).

Full details of these schemes can be found on the ATO website.

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