21st July, 2017
The Australian Government has unveiled a package of housing tax breaks, including a new scheme for first-time buyers, a superannuation incentive for downsizers, and tighter rules for foreign residents.
The Government has published draft legislation to establish a First Home Super Saver Scheme (FHSS). This will allow first-time buyers to save for a deposit inside their superannuation account, attracting the tax incentives and earnings benefits of superannuation. Savers will be able to contribute AUD30, 000 (USD23, 714) (up to AUD15, 000 a year within existing caps), and be able to withdraw the contributions, along with deemed earnings, in order to help fund a deposit on their first home.
The FHSS will apply to voluntary contributions made from July 1, 2017. The contributions can be withdrawn for a home deposit from July 1, 2018. Pre-tax contributions are taxed at 15 percent; withdrawals will be taxed at marginal tax rates, less a 30 percent offset.
Buyers would have 12 months after releasing the savings to sign a contract to purchase a qualifying home, but would be able to ask the Australian Taxation Office (ATO) for a 12-month extension. The buyer(s) would have to occupy the premises as soon as practicable, and for at least six months of the first 12 months.
The Government also intends to introduce legislation to allow Australians aged over 65 to make an exempt contribution to their superannuation after downsizing their property.
From July 1, 2018, people aged 65 and over will be able to make a non-concessional (post-tax) contribution into their superannuation of up to AUD300, 000 from the proceeds of selling their property. Existing contribution caps and restrictions will not apply to this downsizer contribution at the time. However, the AUD1.6m superannuation transfer cap and Age Pension means test will continue to apply, and the downsizer contribution will count towards total superannuation balance tests in later years.
The measure will apply to homes held for a minimum of 10 years, and both members of a couple may take advantage of it (up to AUD300, 000 each). The measure would only apply to home sales where the contract sale is entered into on or after July 1, 2018.
Homeowners would not actually have to “downsize” – they would not be required to make any subsequent property purchase, and could move into any living suitable living situation.
The last element of the package is a proposal to prevent foreign tax residents from claiming the main residence capital gains tax (CGT) exemption when they sell property in Australia. The exemption disregards a taxpayer’s capital gain or loss for CGT purposes, providing that taxpayer is an individual and the dwelling was their main residence throughout the ownership period.
The measure will apply from Budget night 2017 (May 9). Foreign tax residents who held property on Budget night can continue to claim the exemption until June 30, 2019.
The legislation will also modify the CGT principal asset test to apply on an associate inclusive basis. This is to ensure that foreign tax residents cannot avoid a CGT liability by disaggregating indirect interests in Australian real property.
A consultation on the proposed superannuation measures will close on August 4. A separate consultation on the CGT proposals will close on August 15.