09 May 2017
Delivering his second Federal Budget and following the raft of changes to super announced last year, Treasurer Scott Morrison announced very few changes impacting super.
The two proposals likely to impact our members include:
- a new First Home Super Saver Scheme, where members can save a house deposit using their super account, and
- allowing those over age 65 downsizing their primary residence to contribute part of the proceeds towards their super.
In news related to the higher education sector, Mr Morrison confirmed changes to university funding, tertiary student fees and the threshold at which graduates have to start paying back their HELP debt—released ahead of last night’s Budget as part of the Government’s higher education reform package.
He also announced that the Government will reinstate the Pensioner Concession Card for those impacted by the asset test changes introduced in January this year.
At the time of writing, any Budget announcements are proposals only and shouldn’t be considered final until legislation has passed. We’ll continue to keep you updated as developments occur.
What’s been announced?
Savings incentives for first home buyers
What is it?
From 1 July 2017, individuals can make voluntary contributions of up to $15,000 per year and $30,000 in total, to their preferred super account to purchase a first home. Concessional (before-tax) contributions, which are taxed at 15% (along with deemed earnings) can be withdrawn for a deposit. Withdrawals will be allowed from 1 July 2018 and taxed at marginal tax rates, less a 30% offset.
The Government claims that the First Home Super Saver Scheme could increase the savings individuals can put towards a deposit by at least 30% compared with saving through a standard deposit account. This is due to the concessional tax treatment and the higher rate of earnings often realised within superannuation.
Many employees will be able to use salary sacrifice arrangements to make pre-tax contributions.
Individuals who are self-employed or whose employers do not offer salary sacrifice can claim a tax deduction on personal contributions, meaning savings effectively come out of pre-tax income.
Voluntary contributions under this Scheme must be made within existing superannuation caps. The total concessional contributions an individual can make, from both compulsory employer contributions and voluntary contributions, including those made under the Scheme cannot exceed $25,000 in 2017-18. Non-concessional contributions can also be made using the Scheme. When non-concessional amounts are withdrawn, they will not be taxed.
The amount of earnings that can be released will be calculated using a deemed rate of return based on the 90-day Bank Bill rate plus three percentage points (as per the Shortfall Interest Charge).
The First Home Super Saver Scheme will be administered by the ATO, who'll determine the amount of contributions that can be released and instruct superannuation funds to make these payments accordingly.
What does it mean for you?
If you’re saving for your first home, you can use your UniSuper accumulation component or account to save up to $30,000 towards your deposit, capped at $15,000 each year.
You can start using your account this way from 1 July 2017 by asking your employer to direct additional contributions from your before-tax pay (through salary sacrifice). You can also contribute after-tax money if preferred.
These savings will attract super’s concessional tax rates. The ATO will track contributions you make using the First Home Super Saver Scheme and periodically let us know how much you’ve saved and when you’re eligible to withdraw it. Savings made through the Scheme can be withdrawn from 1 July 2018.
ALLOWING DOWNSIZERS TO TOP UP THEIR SUPER WITH PROCEEDS FROM SELLING THEIR PRIMARY RESIDENCE
What is it?
From 1 July 2018, people aged 65 and over will be able to make a non-concessional (after-tax) contribution of up to $300,000 into their super from the sale of their primary residence. If you have a total super balance of $1.6 million or more, the restriction on making any more non-concessional contributions won’t apply to these top-ups.
What does it mean for you?
The current after-tax contribution rules that apply if you’re aged 65 and older (which is the work test for 65-74 year olds, and no contributions if you’re 75 and over) and restrictions on non-concessional contributions for people with balances over $1.6 million won’t apply to contributions made under this proposal.
This proposed measure will apply to a primary residence held for at least 10 years. For couples, both members will be able to contribute from the same home, meaning $600,000 per couple can be contributed to super through the proposed downsizing cap.
These announcements are different to the changes to super coming into effect on 1 July 2017. Read our separate analysis for more information about those changes or speak to a qualified financial adviser about how they may affect you.
LOWER INCOME THRESHOLD FOR STUDENTS TO START PAYING BACK HELP DEBT
What is it?
The Budget confirmed an earlier announcement that from 1 July 2018, the threshold for repaying student loans will be reduced from $55,000 to $42,000, with a repayment rate of 1% at an income of $42,000 and up to a maximum new threshold of $119,882 with a 10% repayment rate. Thresholds will now be indexed to the consumer price index, not average weekly earnings.
REINSTATEMENT OF PENSIONER CONCESSION CARD
What is it?
Pensioners who were no longer entitled to the Age Pension following 1 January 2017 changes to the pensions assets test will have their Pensioner Concession Cards reinstated.
MEDICARE LEVY INCREASE
What is it?
From 1 July 2019, the Medicare levy will increase from 2 to 2.5% to help fund the National Disability Insurance Scheme (NDIS).
More information
For expert insight into this year’s Budget announcements, listen to the recorded webcast with UniSuper’s Industry and Policy Manager Benedict Davies that took place on Thursday 11 May.
For more about how this year’s Federal Budget may affect you, keep an eye out for online updates as they become available, and check the Government’s official Budget website.