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Housing - good news for both retirees and young Australians

Should you downsize and top up your super?

If you’re one of the 80% of retired Australians who own their own home but don’t have enough super, you may want to think about downsizing. Learn more about the proposed super tax incentives for home downsizers and tax break for young home buyers.

Federal Budget 2017: What’s in it for retirees

Boosting retirement savings through downsizing

One of the most important announcements in the Budget for retirees is that older Australians, aged 65 and over, who downsize their family home will be able to contribute an extra $300,000 non-concessional contribution into their super savings. What’s more, couples will be able to take advantage of this measure for the same home, to contribute a total of $600,000 per couple.

This incentive, which starts from 1 July 2018, is significant for retirees as it means they can free up the wealth in their homes to boost their retirement savings.

Key points:

  • These contributions will be in addition to those currently allowed under existing rules and caps
  • They will also be exempt from the existing age test, work test and the $1.6 million balance test for making non-concessional contributions
  • Must have owned and lived in the home for the past 10 or more years
  • However the sale proceeds will count towards the Age Pension assets tests
  • Contributions made under this measure will not be exempt from the transfer balance cap.

How Sarah and John can contribute $300,000 each into super savings

Sarah and John, both age 66, sell their large family home for $1.4 million and purchase a $600,000 unit. They could in theory contribute the full $800,000 proceeds into super using $100,000 each under the normal non-concessional contribution rules if they meet the work test. They could then contribute $300,000 each under this new downsizing cap (even if the work test is not met).

Tax break for first home buyers to save for a home through super

First home buyers will be allowed to save for a deposit for a home through their super fund. Both members of a couple can make voluntary contributions, such as salary sacrifice, of up to $15,000 a year and up to $30,000 in total over their lifetime. Withdrawals from voluntary concessional contributions and deemed earnings can be withdrawn any time after 1 July 2018 and will be taxed at marginal rates less a 30% offset.

This is called the First Home Super Saver Scheme and the Government estimates that for most people, it could boost the savings a couple can put towards a home deposit by at least 30% compared with saving through a standard deposit account.

How Michelle and Nick can turbo charge their first home deposit

Michelle earns $60,000 a year and wants to buy her first home. Using salary sacrifice, she annually directs $10,000 of pre-tax income into her superannuation account, increasing her balance by $8,500 after the contributions tax has been paid by her fund. After three years, she is able to withdraw $27,380 of contributions ($25,500) and deemed earnings ($1,880) on those contributions. Her withdrawal is taxed at 4.5%, which is her marginal rate (including Medicare levy) less a 30% offset, instead of 34.5%.

After paying withdrawal tax it is estimated Michelle has saved over $6,000 more for a deposit than if she had saved the same amount in a standard deposit account after income tax.

Michelle’s partner Nick has the same income and also salary sacrifices $10,000 annually to superannuation over the same period. Together they have over $50,000 that they can put towards a deposit, $12,000 more than if they had saved in a standard deposit account.

Understanding the changes

There were many things announced in the 2017 Federal Budget. It’s important to see a financial planner to understand what these changes mean for you. Just call 1800 620 305 for an obligation-free appointment with a StatePlus planner.

July 1 Super Changes

Superannuation rules are changing July 1st. Find out how changes will affect you.

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Aware Super Pty Ltd ABN 11 118 202 672, AFSL 293340, the trustee of Aware Super ABN 53 226 460 365. Financial planning services are provided by our wholly owned financial planning business Aware Financial Services Australia Limited, ABN 86 003 742 756, AFSL No. 238430.

This information is of a general nature only and is not specific to your personal objectives, personal situation or needs. Before making any decisions based on this information you should consider its appropriateness to you. Every effort has been made to ensure the information is accurate. We strongly recommend that you consult a financial planner before taking action and review the relevant Product Disclosure Statement.

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