Beyond the numbers with Grant Thornton: Listen now
In a measure designed to help first time home buyers to save a deposit more quickly, the Government will increase the maximum releasable amount of voluntary concessional (deductible) and non-concessional (after-tax) contributions under the existing First Home Super Saver Scheme (FHSSS) from $30,000 to $50,000.
Importantly, voluntary contributions made from 1 July 2017 up to the existing limit of $15,000 per year will count towards the total amount able to be released.
Whilst the scheme was first introduced to reduce pressure on housing affordability, it could be argued that the measure may increase demand for housing without addressing the supply side of the equation, leading to further property price increases, and at the expense of these first home buyer’s retirement savings.
Four technical changes will also be made to legislation to assist FHSSS applicants (applied retrospectively from 1 July 2018):
In a measure designed to allow more older Australians to consider downsizing their homes, and thereby freeing up stock of larger homes for younger families, the Government will reduce the eligibility age to make ‘downsizer’ contributions into superannuation from 65 to 60 years of age.
for additional information on what ‘downsizer’ contributions are, and the fine print.
The Government will remove the so-called ‘Work Test’ for individuals aged 67 to 74 years (inclusive), allowing them to make or receive non-concessional or salary sacrificed superannuation contributions without needing to meet the requirement of being gainfully employed for at least 40 hours during a consecutive 30 day period during the relevant financial year.
Removing the work test requirement increases the flexibility for older Australians to save for their retirement by boosting their superannuation contributions.
Pleasingly, this change includes extending access to the ‘bring-forward rule’ for those in this age bracket, putting them on more equal footing with younger superannuants with respect to voluntary after-tax contributions.
It should be noted, however, that individuals aged 67 to 74 years will still have to meet the work test to make personal concessional (deductible) contributions.
In a move to improve equity in the superannuation system, focussed on helping those on lower incomes and women in particular (who have been more adversely affected by the threshold), the Government will remove the current $450 per month minimum income threshold, under which employees currently do not have to be paid the superannuation guarantee by their employer.
The budget papers noted that the Retirement Income Review estimated that around 300,000 individuals would receive additional superannuation guarantee payments each month, 63 per cent of whom are women.
A number of legacy retirement products still exist that restrict access to capital and are currently limited in their ability to be converted to newer, more flexible products.
The Government is seeking to address this issue and further simplify the super system by allowing affected individuals to transition out of a specified range of these legacy retirement products over a two-year period. This measure will include market-linked, life-expectancy and lifetime products, but it will not include flexi-pension products or a lifetime product in a large APRA-regulated or public sector defined benefit scheme.
It should be noted, however, that any associated social security and taxation treatment will not be grandfathered for any new products commenced with commuted funds and the commuted reserves will be taxed as an assessable contribution. It will therefore be important for those with the relevant legacy retirement products to seek advice before exiting these products to fully understand the associated tax and social security implications.
The budget proposes relaxed residency requirements for SMSFs and small APRA-regulated funds (SAFs) by extending the ‘central control and management test’ safe harbour from two to five years for SMSFs, and removing the active member test for both fund types.
The Government notes this measure will allow members of these funds to continue to contribute to their superannuation fund whilst temporarily overseas, ensuring parity with members of large APRA-regulated funds.
The change will provide SMSF and SAF members the “flexibility to keep and continue to contribute to their preferred fund while undertaking overseas work and education opportunities”, without falling foul of the residency rules which can lead dire tax consequences, and without potentially needing to give up control of their superannuation, which is of particular importance to SMSF members.
The Government confirmed that it will not proceed with a proposal to extend early release of superannuation to victims of family and domestic violence.
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