The Government has released draft legislation for the First Home Super Saver Scheme (FHSSS) and downsizer contributions measures from the 2017 Budget.
The 2017 Budget included the First Home Super Saver Scheme (FHSSS) and a scheme allowing people aged 65 or over to contribute extra to super from the proceeds of selling their home – which the draft legislation calls the downsizer contribution.
The downsizer contribution is meant to apply from 1 July 2018. The FHSSS is meant to apply to contribution from 1 July 2017, with withdrawals allowed from 1 July 2018. However this is subject to passage. It is unclear if the FHSSS can pass the Parliament, with Labor already saying they will oppose it.
Treasurer Scott Morrison said, on the release of the draft legislation, “legislation will be introduced [to Parliament] well ahead of the commencement date to provide certainty to savers and sellers,” seemingly in reference to 1 July 2018.
First Home Super Saver Scheme (FHSSS)
The draft legislation sets out the detail of operating a scheme to save for a home deposit through the superannuation system. Super fund members initiate the FHSSS release process requesting a ‘first home super saver determination’ (FHSS determination) from the ATO. The ATO then calculates the ‘maximum release amount’ based on the member’s contributions and a calculation of the associated earnings. A person who receives an FHSS determination can request the ATO to issue a superannuation release authority for the amount.
As part of the FHSSS release process the ATO will need to calculate voluntary contributions – as compulsory contributions are not eligible. The Explanatory Memorandum (EM) to the draft Bill says that it is envisaged that contributions data reported to the ATO, combined with employer payment summaries, will form the basis for identifying voluntary contributions.
“Although any such information will provide evidence of voluntary contributions made in respect of the individual, the information that the Commissioner holds at a particular time can always be supplemented by any other information that the individual provides in respect of their contributions,” says the EM.
The EM notes that there is no requirement that such contributions be traced and released from the same superannuation fund, or even interest, to which the contributions were made.
Special rules will also apply to the order in which contributions are counted for the FHSSS.
“These ordering rules are designed to broadly maximise the amount available to an individual to be released, without requiring them to make specific elections about which contributions should be eligible, or about how particular contributions must be characterised.”
Contributions are to be counted in the order in which they were made – earlier contributions counted first – on a financial year basis.
“Prioritising earlier contributions will generally maximise the amount of associated earnings that are calculated in respect of an individual’s contributions.”
However within a financial year eligible non-concessional contributions are counted before eligible concessional contributions.
“This approach maximises an individual’s FHSS maximum release amount because their non-concessional contributions are not discounted. It also addresses the fact there can be issues with identifying whether a particular contribution made by an individual in a financial year is a concessional contribution or a non-concessional contribution.”
Also, “where an individual has exceeded one of the contribution caps in a financial year, the amount of the excess is not eligible to count towards their FHSS releasable contributions amount.”
A ‘post-release compliance approach’ is planned for the FHSSS – meaning that individuals will be able to access their FHSSS amount before having to pay a home deposit. Instead of showing that they have entered into a contract before accessing the FHSS they will have to purchase a first home within a specified period after the amount is released and notify the ATO of the purchase.
If they fail to purchase a home within this period they can either recontribute the amount back into super or pay an amount of tax which will, broadly, offset the tax concession from the FHSSS.
The time period allowed under the draft Bill is 12 months from the date of the release of the FHSSS amount, with an option for the ATO to extend it by an additional 12 months.
The associated earnings amount will be calculated on an annual basis for the 2017/18 year, and on a monthly basis after that.
“For contributions made in the 2017-2018 financial year, earnings are calculated form the first day of the year. However, for contributions made in later financial years, contributions are calculated from the first day of the month in which the contribution is made (or is taken to be made because of the ordering rule).”
“These different earnings periods reflect a change to the frequency of reporting that the Commissioner is expected to make from the 2018-2019 financial year. This change will make it possible to identify the month in which particular contributions are made. However, for the 2017-2018 financial year, earnings are calculated on an annual basis, reflecting the annual reporting of contributions for that year.”
The following is one of the examples in the EM of how the FHSSS will be calculated:
Megan makes monthly member contributions of $3,000 within a financial year (a total of $36,000 of contributions for the year). These are the only contributions that are made in respect of Megan for the year.
At the end of the financial year, Megan claims a $25,000 deduction for some of the contributions that she made during the financial year. As a result, her concessional contributions for the financial year are $25,000 and her non-concessional contributions are $11,000. All of these contributions are within her contributions caps.
In addition, the ordering rule for non-concessional contributions means that for the purposes of determining Megan’s FHSS releasable contributions amount, the first three contributions that Megan made are non-concessional contributions, and $2,000 of the fourth contribution is a non-concessional contribution. These contributions are all eligible to be counted towards Megan’s FHSS releasable contributions amount for the year as FHSS eligible non-concessional contributions because they are less than $15,000 in total.
Under the $15,000 annual cap, $4,000 of Megan’s concessional contributions can still be counted.
Of Megan’s $25,000 of concessional contributions, the remaining $1,000 from her fourth contribution and the entire amount of her fifth contribution are therefore FHSS eligible concessional contributions. In adding these contributions to Megan’s FHSS releasable contributions amount, the concessional contributions are both reduced by 15 per cent.
Megan is entitled to release $14,400 (plus associated earnings), which is comprised of $11,000 of non-concessional contributions and $3,400 of concessional contributions (being 85 per cent of $4,000).
$300,000 downsizer contribution
The draft legislation also includes the measure to allow people aged 65 and over to make up to $300,000 in additional contributions to super from the sale of their home on or after 1 July 2018.
“Downsizer contributions are not tax deductible and can be made for an individual in relation to one sale of a main residence. Further downsizer contributions cannot be made in the future in relation the sale of another main residence,” says the Explanatory Memorandum (EM) to the draft Bill.
Per the draft Bill, the total amount of a downsizer contribution is the lesser of $300,000 or the individual’s and their spouse’s share of the home sale proceeds.
“In determining whether a contribution can be accepted as a downsizer contribution, superannuation provider must be satisfied that the contribution meets the conditions that are required for acceptance. However, in determining whether a contribution can be accepted as a downsizer contribution, funds are not expected to undertake verification processes that are any more onerous than those that currently apply in determining whether a member satisfies a particular age or work test.”
The EM sets out the following conditions for a contribution to be a downsizer contribution
- The individual must be aged 65 years or older at the time the contribution is made;
- The contribution must be in respect of the proceeds of the sale of a qualifying dwelling in Australia that either the individual or their spouse owned for at least 10 years up to the disposal;
- The disposal of the dwelling must have qualified (or would have qualified) for the main residence CGT exemption in whole or part;
- The contribution must be made within 90 days of the disposal of the dwelling, or such longer time as allowed by the Commissioner;
- The individual must choose to treat the contribution as a downsizer contribution, and notify their superannuation provider in the approved form of this choice at the time the contribution is made; and
- The individual cannot have had downsizer contributions in relation to an earlier disposal of a main residence.
Consultations on the draft Bills close Friday, 4 August 2017.