Super Informed Radio bonus episode: So, can I use my super to buy my first home now?
|Disclaimer: What you're about to read is of a general nature and doesn't take into account your personal financial situation, needs or objectives. We recommend you seek financial advice before making any decisions about your super and consider the relevant UniSuper product disclosure statement.
Lyndon: Well hello, and welcome to this special bonus edition of Super Informed Radio. Lyndon and Marta here with you, hi Marta.
Marta: Hi, Lyndon. I love me a bonus episode. I think this is the first one we've done, actually.
Lyndon: I think it is. I think it's the first...
Marta: Out of our regular suite of programming.
Lyndon: That's it. And we are here for a particular reason today, Marta. Would you like to enlighten the listeners?
Marta: I'd love to. So, two proposed changes that were announced earlier on this year in the May Federal Budget have just been passed into law. So to refresh your memory, in case you guys missed it, the First Home Super Saver Scheme proposal and Downsizer proposals have passed. So these could have... they're kind of complex and could change the way that many of our members and listeners could save for their retirement and/or buy a home. The rules are a bit complex and stuff, so I was hoping we could get one of our resident political experts and fellow political junkies in the studio to talk us through them.
Lyndon: And we have that very person with us waiting in the wings. So why don't we jump straight into it?
Marta: Let's do it.
Lyndon: So, Benedict Davies, thank you for joining us here on Super Informed Radio.
Benedict: It's a pleasure.
Marta: Welcome back, actually, because we've had you before.
Benedict: Yes, I think we've discussed these issues around budget time this year.
Marta: Yeah, we talked about the ability for people to use their super to buy a home. And in fact… there's been some developments on that front. Can you take us through what's happened?
Benedict: Indeed. Well, this week, the last sitting week of Parliament, there were half a dozen superannuation bills covering a range of areas, but two of them have passed, and one is the First Home Saver Super Scheme and the other is the Reducing Barriers to Downsizing Measures. So they've been passed by both houses of the Parliament and are awaiting royal assent.
Lyndon: It's done and dusted but it's a bit of a formality, is that right?
Benedict: Exactly. So other than a formality, yeah, these two measures that have been talked about for quite a period of time now are effectively law.
Lyndon: And so what exactly is it? How will it work?
Benedict: Well, let's start with the First Home Super Saver Scheme, which is an arrangement to allow people to make additional voluntary contributions to superannuation and then to release those to make a contribution to purchase of a first home. There's a lot of complex technical rules, as with anything with superannuation, but that's the essence of it.
Marta: So just to clarify for our listeners, it's not the super that your employer already makes on your behalf but it's your, like, 9.5% for example—or in some cases more than that depending on your arrangement—but it's anything you do above and beyond that, is that correct?
Benedict: Correct. So, yeah, you've identified the core issue, which is voluntary contributions, which like with anything in law, it has to be defined and it's a slightly complex definition, but it really talks about any voluntary salary sacrifice contributions you may ask your employer to make on top of what already they're contributing, or it may be a post-tax contribution that you make as a member contribution. So it's those two things that are described as ‘voluntary contributions’, and voluntary contributions will count towards being eligible to be withdrawn at some stage in the future.
Marta: Are there any limits to how much people can put in for a deposit at this stage?
Benedict: Well, the contributing into this arrangement is still subject to contribution caps, so I guess that's the first thing to think about. The contribution cap is at $25,000, the concessional one. That's tax concessionally treated contributions.
Marta: So that's before-tax.
Benedict: Yeah, that's before tax. So the contributions would still need to be within that cap, so it's not on top of that cap, so that's the first thing to be aware of if you're going to ask for additional salary sacrifice contributions, you need to have room within the concessional contribution cap. Alternatively, it's a much higher cap but it needs to be within the non-concessional contribution cap. So contributions need to be within those caps. The amount that can be withdrawn from the scheme is up to $30,000 plus an earnings amount, which the [Australian Taxation Office] ATO will calculate based upon some rates of interest that they maintain. So you don't need to actually do the calculation yourself. We'd need to do it for you. The ATO actually does a calculation of the maximum amount that can be released from your accumulation interest.
Lyndon: So if I can summarize my understanding of the scheme: the intent is to use the super system in that there’s favourable tax treatment, generally speaking, and also the sort of investment earnings also would probably, generally, be better than someone sitting their deposit money in a term deposit, for example. So when would members be able to start contributing to this scheme and withdraw money from the scheme?
Benedict: Members may in fact already be contributing to this scheme without even knowing it. So contributions from the 1st of July, 2017—that's the current financial year—have been eligible to count towards the releasable amount.
Lyndon: So what does that mean in practice?
Benedict: So voluntary contributions from 1 July 2017 are eligible to count towards this $30,000 or $15,000 per year limit. So they're not additional types of superannuation. They're all bundled together, so it doesn't distinguish between your pot of retirement savings and your pot of house savings—they are bundled together.
Benedict: But additional voluntary contributions, if you've been making them, are already counting towards this – subject to a whole lot of other eligibility criteria—but once the law becomes the law, it looks backwards and says, well, contributions from that data are potentially eligible to be withdrawn. Now, to withdraw, though, is actually from 1 July 2018, so next financial year. We're not yet in a position where people can release these monies in the current financial year, but any additional voluntary contributions that are being made are potentially eligible to be withdrawn.
Marta: So on that note, are there any particular rules or anything that… you know, you couldn't just take out the money and have it there forever. Are there any particular restrictions or rules that the government are keen to place on any money that people decide to take out for their deposit?
Benedict: Once you release the monies from superannuation… well, the ATO will give a person a form allowing them to release monies from superannuation, and the monies then need to be used to purchase a home. There's a number of rules around that in terms of the time frames and special allowance if you've been unlucky trying to acquire property in a certain time frame. The spirit of it is you need to be in the process of purchasing a first home. There's law about that, what a first home means, what it means to have owned a home. Is a home a caravan? Is a home a boat? Those sort of things is what they end up designing in law.
Marta: Okay. So we've got some information on our website which might help you and you could also check out the ATO's website for more detailed information about those kinds of rules and bits and bobs.
Benedict: I think it's really important because, yeah, it's technical law and so there are, you know… what does it mean if you're a New Zealander? What does it mean if you've potentially owned vacant land in the past? So it goes into all of those details. To give a high-level answer is you're expected to purchase a home within 12 months of releasing the money. There are some rules if you're unable to do so and the expectation is you contribute the money back to superannuation or you'll be subject to a penalty tax.
Lyndon: And so the other aspect of this, Benedict, as we mentioned before was a downsizing scheme as well. Can you talk us through that a little bit?
Benedict: Yeah. So that's almost the other side of this transaction, I guess.
Marta: At the other end of life.
Benedict: Indeed. So this first measure, I guess, is designed for younger members. The downsizing measure is designed for old members, typically those who are 65 or older. The issue that they face is that if you're not working, contributing to superannuation has a work test. So if a person sells their home and downsizes, they may be eligible to contribute some of the proceeds from downsizing their home to superannuation, essentially to fund their retirement. The rules come in 1 July 2018, so it's not in the current year. It's in the next financial year.
Marta: So hold off on that, guys.
Benedict: Yes. Yeah, exactly. Hold off. One thing to be very careful about though is if you're receiving the age pension or potentially in a position to receive the age pension next few years, that the family home is exempted from the assets test, whereas superannuation is not. So it's a sort of area where you might want to seek financial advice.
Marta: Yeah, because it could shift the scales one way or the other.
Benedict: You could, in fact, be taking some money from an exempt asset and adding it to an accessible asset and reducing your age pension in the process.
Marta: So it's probably quite prudent at this point that we would like to remind our listeners that if you're interested in taking advantage of these measures in due time when you can, we would encourage you to speak to a financial advisor about whether these schemes would suit your personal circumstances and to make sure that you completely understand all of the tax implications of these schemes. You can find out more about our financial advice service, UniSuper Advice, by visiting unisuper.com.au/advice.
Lyndon: Very good. Thank you so much for coming in today, Benedict, and talking our members through these schemes. And I'm sure we'll be hearing more from you in the future about them.
Benedict: Thank you.
Marta: So thanks very much for tuning in to our special bonus episode of Super Informed Radio. It's a bit exciting here, isn't it, Lyndon?
Lyndon: Look, it can't be denied. There is a buzz in the room.
Marta: So before making any big changes to your super, we're still working out how exactly that will work for our UniSuper members, so please keep an eye out on our website for updates as they occur. And as usual, if you like this episode, please catch up on past episodes by visiting unisuper.com.au/podcasts or subscribing to us through the Apple Podcasts app or wherever you get your podcasts.
Lyndon: And I think that about does us for today, so thanks for listening. See you next time.