What if...: Annette Sampson

Both first-home buyers and foreign investors will be waiting to see whether the budget measures get through parliament

SHOULD I HOLD MY BREATH?

That’s always dangerous in the current political climate. Labor says it will oppose the proposed changes, preferring cuts to negative gearing. But let’s look at what’s on the table.

FIRST-HOME OWNERS

No, you’re not going to be able to draw down on your super to fund that home deposit. But the government will allow you to contribute up to $15,000 a year – with a total limit of $30,000 – to fund your first purchase.

You can ask your employer to salary sacrifice the extra money so that it comes out of your salary before tax, or contribute yourself and claim a tax deduction.

So instead of being taxed on that salary at your marginal tax rate, it will be taxed at the 15% that applies to concessional super contributions.

However, the annual limit (currently $25,000) on concessional super contributions will still apply, so if you’re receiving super contributions worth more than $10,000, you won’t be able to put aside the full $15,000. Consulting firm Rice Warner calculates that if you earn more than $106,000 your compulsory super contributions will exceed $10,000, making you ineligible for the maximum housing contribution.

Your money will have to stay in the fund for at least a year, and will be taxed at your marginal rate (including the Medicare levy) minus a 30% tax offset when you take it out. If you don’t end up buying a home, the money will stay in super – you can’t withdraw it for other purposes.

Your home deposit savings will earn a deemed rate of interest set at the 90-day bank bill rate plus 3%, which is much better than you’ll do in an ordinary savings account, though it may be less (or more in a bad year) than your super fund earns. The government has set up a calculator at budget.gov.au/estimator.

EMPTY NESTERS

From July 2018 the government says it will allow people 65 or older who have owned their homes for at least 10 years to contribute up to $300,000 of the proceeds to super if they downsize. Couples will be able to contribute up to $300,000 each.

You’ll be able to do this even if you are not otherwise eligible to contribute to super, such as if you’re over 75. The current restrictions on non-concessional contributions for people with balances over $1.6 million will not apply either, effectively allowing downsizers a higher cap. However, the government says you will still only be able to transfer $1.6 million to a

pension account where the earnings are tax-free; any excess will remain in the accumulation phase, where earnings are taxed at 15%.

This measure will best suit self-funded retirees looking to maximise tax-free pension income by downsizing. However, its appeal will be offset for many by the fact that the money contributed to super will still be counted in the means tests for the age pension and other benefits. As their home is not means-tested, retirees on a full or part pension could still lose that support if they sell their home.

INVESTORS

The only investor measures proposed are disallowing travel expenses to inspect, maintain or collect rent from investment properties and curbing depreciation deductions. Investors will also only be able to claim depreciation on the amount they have actually paid for plant and equipment such as dishwashers and ceiling fans. If you buy a property with existing plant and equipment, it will be reflected in your cost base for capital gains tax.

Both measures will apply from July 1, though the depreciation measure will be grandfathered. If you bought a property before 7.30pm on May 9, you can continue to claim deductions. If you buy plant or equipment after that, you can continue to claim depreciation but subsequent owners will not be able to claim if you sell.

FOREIGN BUYERS

Foreign buyers will no longer receive a capital gains tax exemption on their main residence in Australia if they buy after budget night. Existing owners will be grandfathered until June 30, 2019.

Foreign owners who leave their properties vacant for at least six months in the year will have to pay a new levy, and foreign ownership in new developments will be limited to 50% in multi-storey buildings with at least 50 dwellings.

DID YOU KNOW?

Labor introduced tax-advantaged savings accounts for first-home buyers in 2008 – and canned it due to a lack of interest. Less than 50,000 accounts had been set up, well under projections of more than 750,000.