Super stability surprise for all
We experienced shock of a different kind during the Federal Budget update earlier this month. After years of tinkering, it seems the Government has taken steps to provide a stable environment to encourage us to plan for our future.
The main change impacting superannuation involves allowing people aged 65 and over to downsize their home and gain exemptions to superannuation caps, a First Home Super Saver Scheme and the rounding up of minor technical changes already announced.
The key changes proposed for superannuation are:
Downsizing exemption to superannuation caps
From 1 July 2018, individuals aged 65 and over will be able to downsize their family home and place proceeds up to $300,000 per member (ie. $600,000 per couple) into their superannuation fund without needing to stay within any contribution caps or meet a work test and age test.
The measure will apply to a principal place of residence held for a minimum of 10 years. This means even if an individual has a total superannuation balance of $1.6 million or more they will not be restrained from making an after-tax contribution with their house proceeds and can mean a significant saving on tax that otherwise may have been levied on earnings outside superannuation, at the marginal rate, not to mention the benefits of lower Capital Gains Tax rates when the new investment assets are eventually sold after 12 months or say, on a member passing away.
First Home Super Saver Scheme
Individuals can make voluntary contributions of up to $15,000 per year and $30,000 in total to their superannuation to later withdraw to purchase a first home. Note these annual contributions are still bound by the current $25,000 concessional cap and $100,000 non-concessional cap (caps from 1 July 2017). These voluntary contributions and associated earnings that are withdrawn will be taxed as income less a 30% offset. The measure will assist first home buyers to save a deposit for their home faster than not enjoying some relief on their savings.
Integrity of limited recourse borrowing arrangements
The Government is proceeding with amendments to the transfer balance cap and total superannuation balance rules for limited recourse borrowing arrangements (LRBAs) – where SMSF’s have borrowed funds to invest. The outstanding balance of an LRBA will now be included in a member’s annual total superannuation balance for all new LRBAs once this legislation is passed which will impact social security recipients and those wanting to make us of the catch up provisions for using concessional cap capacity not used over the preceding 5 years (from 1 July 2018) and whose balance exceeds $500,000.
Integrity of non-arm’s length arrangements for SMSF members
The Government will amend the non-arm’s length income rules to prevent member’s using related party transactions on non-commercial terms to increase superannuation savings by including expenses that would normally apply in a commercial transaction.
Other changes announced
- The Government will reinstate the Pensioner Concession Card for pensioners who were no longer entitled to the pension following changes to the pension assets test from 1 January 2017.
- The Government will introduce a major bank levy which will raise $6.2 billion in the next four years.
- The Government will introduce a new single body external dispute resolution scheme for financial services from 1 July 2018.
The Medicare Levy will be increased from 2% to 2.5% from 1 July 2019.
How can we help?
If you have any questions or would like further clarification in regards to any of the above measures outlined in the 2017-18 Federal Budget, please feel free to give me a call on 1300 301 548 to arrange a time to meet so we can discuss your particular requirements in more detail.
Steven Cooper is an experienced financial planner focused on providing optimum outcomes. His company, CooperBarber Financial Planning, provides services covering wealth creation, wealth management and wealth protection. Visit www.cooperbarber.com.au for further information. Authorised Representative CB Wealth Services AFSL 487183