What super changes mean for real estate
❝ Importantly, these super contributions are outside of the contribution caps.
CHANGES to Australia's superannuation system have been a source of angst for investors and retirees over the past few years.
While superannuation remains an efficient avenue in which to save for retirement, there are important changes due to take effect from July 1, which may also have an impact on Australia’s property market.
From this date, first home buyers will be permitted to utilise their existing superannuation accounts as a savings vehicle for a deposit on their first home.
This initiative has been called the First Home Super Savers Scheme and allows first home buyers to achieve a lower level of tax on super contributions (salary sacrificed above their mandatory 9.5% super contributions).
These withdrawals will be permitted from July 1, 2018.
The May 2017 Federal Budget provided this example: Michelle earns $60,000 per year, and salary sacrifices $10,000 of her pre-tax income toward her superannuation account, boosting her balance by $8500 after contributions tax.
After three years, she can withdraw $27,380 plus earnings on those contributions, paying tax of $1620, leaving her with $25,760 for her deposit. That works out to about $6240 more than if she had saved in a standard deposit account.
Dollar limits apply to this scheme. Savers may only deposit $15,000 per year and a total limit of $30,000 applies.
At the other end of the spectrum, baby boomers are being encouraged to downsize to increase the number of properties available to families.
Those aged 65 and over can make a non-concessional contribution of up to $300,000 (per person) into their super account from the sale of their home. The catch is, they must have lived in their home for a minimum of 10 years.
Importantly, these super contributions are outside of the contribution caps. This initiative is available from July 1, 2018 and is expected to be a desirable option for empty nesters because for many the home represents a significant portion of their retirement assets.
The rise of property assets within self-managed superannuation funds (SMSF), including commercial premises for many small businesses, are likely to become key issues with respect to the $1.6 million contributions cap on tax-free earnings, which commences on July 1.
The Federal Government will establish a $1 billion national housing infrastructure facility aimed squarely at increasing the supply of housing, including the opening of Commonwealth land. In a bid to address the growing housing affordability burden, the Federal Government promises to work closely with the state and territory governments to reform planning and zoning laws.
The contentious negative gearing provisions are safe for now, but the government is tightening up on travel expenses and depreciation rules.
Investors will no longer be able to claim travel expenses as a tax deduction and depreciation deductions for plant and equipment, for example dishwashers and air conditioners will only be deductible if the investor physically purchased them.
The government is also cracking down on foreign investors, with the introduction of a ghost tax for residential properties left vacant for more than six months of the year. New developments will be subject to a 50% cap on foreign buyers, and foreign buyers face tighter capital gains and withholding taxes.