New legislation aims to benefit downsizers and first home buyers

Changes aimed at improving housing affordability have passed through parliament. See what the new rules could mean for you. 

Government proposals around improving housing affordability in Australia were passed through parliament on 7 December 20171.

As part of the changes, Australians aged 65 and over will be able to contribute the proceeds from the sale of their main residence (up to $300,000) into super, while first-home buyers will be given a tax concession through the ability to save for a home deposit inside of super.

We take a look at what the changes could mean for you, bearing in mind that like with all important financial decisions, it's a good idea to get financial advice before deciding what's right for you.

Super benefits for downsizers

Currently, people aged between 65 and 75 who want to make voluntary super contributions must satisfy a work test, while people over 75 are generally unable to contribute to their super.

From 1 July 2018 that will change. People aged 65 or over will be able to make an after-tax contribution to their super of up to $300,000 using the proceeds from the sale of their main residence – regardless of their work status, superannuation balance, or contribution history.

For couples, both spouses will be able to take advantage of this opportunity, which means up to $600,000 per couple can be contributed toward super.

How does it work?

Proceeds from the sale of your main residence that are contributed into super as part of this initiative can be made in addition to other before or after-tax contributions you’re eligible to make.

The government said the aim is to encourage older Australians, where appropriate, to free up homes that no longer meet their needs and make room for younger growing families2.

To qualify, the contracts for sale must be exchanged on or after 1 July 2018. The property that’s sold also needs to have been your (or your spouse’s) main place of residence at some point in time, and you need to have owned the home for at least 10 years.

‘Downsizing’ contributions are not tax deductible and can be made regardless of super caps and restrictions that otherwise apply when making super contributions. The property that's sold must be in Australia and excludes caravans, mobile homes and houseboats.

Things to note

No special Centrelink means test exemptions apply to the downsizing contribution. Due to this, there may be means testing implications as a result of downsizing, which need to be considered.

Meanwhile, additional rules may apply to your situation, so make sure you do your research before making any decisions.

Also note, if you're an AMP customer, a Downsizer Contribution Form from the Australian Taxation Office (ATO) will need to be provided to AMP when making, or prior to making, this type of contribution. These forms will be available from 1 July 2018.

Check out our infographic below for a snapshot of some of the advantages and considerations.

 

Further reading that may be of interest

Tax concession for first home buyers

From 1 July 2018, eligible first home buyers will be able to withdraw voluntary super contributions (which they've made since 1 July 2017), along with associated investment earnings, to put toward a home deposit.

How does it work?

Under the First Home Super Saver Scheme (FHSSS), first home buyers who make voluntary contributions of up to $15,000 per year into their super can withdraw these amounts, in addition to associated earnings, from their super fund to help with a deposit on their first home.

If eligible, the maximum amount of contributions that can be withdrawn under the scheme is $30,000 for individuals or $60,000 for couples.

Voluntary contributions can be made by salary sacrificing from before-tax income, by making personal tax-deductible contributions, or by making personal after-tax super contributions.

When the money is withdrawn, before-tax and tax-deductible contributions are taxed at your marginal tax rate, less a 30% tax offset, while after-tax contributions aren’t subject to tax.

Due to the favourable tax treatment, generally available through super, this scheme intends to help first home buyers grow their deposit more quickly.

Things to note

To make a withdrawal under the scheme, an application to the ATO will be required, and an eligible person is only allowed one FHSSS withdrawal in their lifetime.

There are super contributions which will not qualify and cannot be withdrawn under the scheme, such as super guarantee contributions made by your employer, as well as spouse contributions.

FHSSS amounts that are withdrawn and not subsequently used for a property purchase must be put back into super as after-tax contributions, or penalties will apply.

The first home buyer must reside at the property for at least six months in the first 12-month period from when it can be occupied.

Additional rules may apply to your situation, so make sure you do your research before making any decisions.

Further reading that may be of interest

Where to go for more information

Like with most things, when you’re making a big financial decision, which could have implications, it’s worth doing your research and speaking to your financial adviser first.

If you don’t have an adviser but would like to seek some advice, you can call AMP on 131 267 or use our find an adviser search engine.

If you’d like to speak to an AMP Bank relationship manager about our current home loan rates, you can request a call back via our online form.

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This information is provided by AMP Life Limited. It is general information only and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances and read the relevant Product Disclosure Statement or Terms and Conditions before deciding what’s right for you.

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