Update: 2017 Budget ‘housing affordability’ proposed measures

The 2017-18 Federal Budget delivered by Treasurer Scott Morrison on the 9th of May 2017 was packed with proposed measures. Of most note was moves by the Government to address the issue of housing affordability.

In this article, we review several of these ‘housing affordability’ proposed measures that have recently passed through the parliamentary process and become law – in particular how they affect residential property investors, retirees wishing to downsize or prospective first homebuyers.

You may find it helpful to first recap on how proposals become law via our article, “From Proposal to Law”.

Residential property investors
Residential property investors are no longer able to claim a tax deduction for travel expenses for personally inspecting, maintaining or collecting rent for their residential rental property; however, can continue to claim travel expenses incurred by third parties such as property management services. This has been backdated to commence from 1 July 2017 onwards.

Furthermore, the Government has limited plant and equipment depreciation deductions to outlays incurred by the current owner of a residential real estate property; however, grandfathering arrangements may apply to existing residential real estate properties as at 9 May 2017. This has been backdated to commence from 1 July 2017 onwards.

Source: Treasury Laws Amendment (Housing Tax Integrity) Act 2017, which received royal assent on the 30th of November 2017.

Retirees wishing to downsize
From 1 July 2018, eligible homeowners aged 65 and over will be able to use the proceeds from the sale of their family home (main residence) to make a downsizer contribution of up to $300,000 each (that is, up to $600,000 per couple) into their superannuation.

This is referred to as the ‘Downsizing Measure’.

Please note:

• Homeowners do not need to comply with the existing work test and age limit eligibility criteria for contributing to superannuation.

• The family home must have been owned for 10 years or more prior to disposing of it and not be a caravan, houseboat or mobile home. In addition, the proceeds from the sale must be either exempt or partially exempt from capital gains tax (CGT) under the main residence exemption.

• The exchange of contracts for the sale must occur on or after 1 July 2018. Furthermore, the contribution to superannuation must be made within 90 days of the date of change in ownership as a result of the disposal (e.g. the date of settlement); however, an extension may be granted in certain circumstances.

• The contribution amount cannot be greater than the total proceeds of the sale of the family home. For example, if a couple sell their family home for $500,000: the maximum contribution both can make cannot exceed $500,000 in total – this means the couple can either choose to contribute half each (i.e. $250,000), or split it (e.g. $300,000 for one and $200,000 for the other).

• The contribution is not limited by the contributions caps or the $1.6 million total superannuation balance limit on making non-concessional contributions; however, the amount contributed will increase the total superannuation balance and can therefore limit the ability to contribute in future years.

• Unlike the family home, funds that have been contributed to an individual’s superannuation may reduce their Age Pension benefits, and increase any means tested Residential Aged Care and Home Care fees they pay.

• Lastly, the Downsizing Measure may only be used once (i.e. on one family home) and despite the name, ‘Downsizing Measure’, there is no requirement to purchase another home nor is there a restriction imposed on purchasing a more expensive replacement home. 

Source: Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 1) Act 2017, which received royal assent on the 13th of December 2017.

Prospective first homebuyers
From 1 July 2018, eligible prospective first homebuyers will be allowed to withdraw their voluntary superannuation contributions (and, an amount of associated earnings*) for the purpose of purchasing or constructing their first home. These voluntary contributions, which must be made within existing superannuation contribution caps, include concessional (i.e. personal deductible contributions and salary sacrificed amounts) and non-concessional contributions. The amount available for withdrawal will be up to $15,000 of voluntary contributions per financial year since 1 July 2017 ($30,000 in total) plus associated earnings, less tax on concessional contributions and associated earnings (e.g. taxed at marginal tax rates, less a 30% offset).

This is referred to as the ‘First Home Super Saver Scheme’.

*Calculated using a deemed rate of return, which is based on the 90-day Bank Bill rate plus three percentage points (shortfall interest charge rate).

Please note: To be eligible to take advantage of the First Home Super Saver Scheme, an individual must, for example:

• Be 18 years or older – however, this does not prevent voluntary contributions that an individual makes before they turn 18 from being eligible to be released after they turn 18;

• Never have held interest in property (including investment property and commercial property) – however, those considered to be suffering financial hardship may be exempt from this provision. The specific regulations regarding financial hardship have not yet been released;

• Have not previously released funds under the First Home Super Saver Scheme;

• Intend to use the released funds for the purpose of purchasing or constructing their first home – and, in doing so:
  • Enter into a contract within the first 12 months of the funds being released; however, an extension may be granted in certain circumstances.
  • Occupy (or intend to occupy) the premises as soon as practicable as their main residence, and for at least 6 months of the first 12 months after it is practicable to do so.

Source: Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 1) Act 2017, which received royal assent on the 13th of December 2017.

Please note: If the individual is unable to enter a contract to purchase or construct a home within the required period, they must recontribute the released amount (net of tax withheld), into super. If the funds have not been recontributed, a first home super saver tax will be imposed. The amount of this tax is 20% of the individual’s assessable first home super saver released funds.

Source: First Home Super Saver Tax Act 2017, which received royal assent on the 13th of December 2017.

Moving forward
So there are a number of proposed measures that have now become law, which aim to address the issue of housing affordability. Some impose restrictions, whilst other provide opportunities.

Whether you are a residential property investor, retiree looking to downsize or prospective first homebuyer, if you have any questions regarding anything discussed in this article then please contact us.