A number of changes were proposed by the Government during the election campaign, and support was also announced for a number of proposals made by the previous Government.
So where do things stand, what’s next, and how could these proposals impact you?
Below is a summary of some of the key announcements to date, and the opportunities which may exist.
Change is on the horizon
The recent Federal Budget and Federal election have resulted in a number of proposed changes to social security, support for homebuyers, and superannuation. In addition, a number of changes relating to superannuation are coming into effect from 1 July 2022—which may provide even greater opportunities.
While change may bring opportunity, it’s worthwhile receiving professional advice from your Pinnacle Adviser to understand how the changes apply to you and also whether they are appropriate for your circumstances.
The summary is based on information known as of the 25th May.
When will these changes take effect?
The announcements made prior to the election are proposals only and legislation (or other formalities) will need to be passed for these measures to take effect. The Government’s position on these proposals and commencement dates may change and details need to be confirmed.
Proposals at a glance…
Social security measures
Freezing of deeming rates
The Government has committed to freezing deeming rates for two years until 2024. This may benefit you if you’re receiving an income tested pension or allowance, or are a concession card holder. While deeming rates are subject to periodic change, the current deeming rates have been in effect since 1 May 2020.
The deeming rates and thresholds are show in the table below. As explained in the table, the deeming rates are based on the amount of financial investments you hold, and increase based on assets held above a certain level.
|Deeming rate||Single||Couple (includes illness separated)|
|0.25%||First $53,600||First $89,000|
|2.25%||Above $53,600||Above $89,000|
Note: The deeming thresholds ($53,600 and $89,000) are indexed on 1 July each year in-line with the Consumer Price Index (CPI).
Extending the exemption on home sale proceeds
The Government has proposed to extend the existing 12 month exemption that applies if you’re a social security recipient, and you sell your primary residence. The exemption applies to a certain portion of sale proceeds of your home under the assets test. The proposal is to extend the exemption for an additional 12 month period.
Regional First Home Buyer Support Scheme
The Regional First Home Buyer Scheme is proposed to provide support for 10,000 first home buyers to purchase a home in regional Australia.
The Government will guarantee up to 15% of the eligible purchase price which would allow mortgage insurance to be avoided. To be eligible to participate in the scheme, you must:
- live outside a capital city and have been living in the region for at least 12 months
- be over 18, an Australian citizen and first home buyer
- live in the property purchased, and
- have taxable income of up to $125,000 pa (single) or $200,000 pa (couple)
Property price thresholds will also apply based on the region in which the property is located.
Help to buy scheme
The Government has proposed to introduce the Help to Buy scheme, which is a shared equity scheme. Support will be available for up to 10,000 people each year.
If you’re eligible, the scheme will provide support for up to:
- 40% of the purchase price of a new home, and
- up to 30% for an existing home.
You will be required to have at least a 2% deposit, and Lenders Mortgage Insurance will also be avoided.
To be eligible you must:
- be an Australian citizen
- be aged at least 18
- earn less than the annual income cap ($90,000 for singles and $120,000 for couples)
- not own other property or land anywhere in the world
- live in the purchased home as the main residence, and
- pay all associated purchase costs, including all fees and duties, as well as all ongoing property costs.
Expanding the Downsizer Contribution opportunity
The eligibility age for downsizer contributions is already legislated to be reduced from 65 to 60 from 1 July 2022. The Government has proposed to further reduce the eligibility age to 55 from 1 July 2022.
What are downsizer contributions?
Downsizer contributions allow eligible individuals to contribute some or all of the proceeds of the sale of their home to superannuation, without impacting other contribution caps. Unlike other types of contributions, such as personal after-tax contributions, downsizer contributions do not have a total super balance limit, or an upper age limit. This means it could be a great, sometimes final way to boost your super if you don’t meet other eligibility rules to contribute, or where your other contribution caps have been earmarked for other purposes.
Provided certain other conditions are met, it may be possible to contribute up to $300,000 per person (or $600,000 per couple) from the proceeds of selling your home.
Downsizer contributions won’t count towards your concessional or non-concessional contribution (NCC) caps. You’ll need to make the contribution within 90 days of settlement of your sale. You also need to complete the Downsizer contribution to super form to notify your fund that you’re making a downsizer contribution which must be submitted no later than the time your contribution is made. You must have reached the eligibility age at the time of contributing.
What is the possible benefit?
Aside from super being a concessionally taxed investment, there are a number of other ways a downsizer contribution could benefit you. Funds in super accumulation phase are an exempt asset for social security purposes while you are under your Age Pension age. This could help increase or maintain your or your spouse’s entitlement to a pension or other benefit. Also, making a downsizer contribution together with an NCC could help you contribute even more of your home sale proceeds into the concessionally taxed super environment.
What do I need to do?
If you’re planning to sell a property, speaking to your Pinnacle Adviser is a great way to work out if you’re eligible to make a downsizer contribution. Also, if you’ve recently sold or are in the process of selling a property and you’re considering contributing some of the sale proceeds to super, now is a great time to speak to your Pinnacle Adviser to understand whether you could benefit from this change, as well as explore other opportunities for you.
For more information you can visit ato.gov.au.
It is important to remember that at this time, these proposals are not yet law. You should not act on any of these announcements until they are legislated, or take effect. It is also important to speak to your Pinnacle Adviser for more information about the changes and to understand how they may provide opportunities for you.