Bills Digest No. 43, 2017–18
PDF version [702KB]
Kali Sanyal and Helen
Portillo-Castro
Economics Section
17
October 2017
Contents
Glossary
Table 1: abbreviations and acronyms
Purpose of the Bills
Structure of the Bills
Background
2016–17 budget announcements
Recent parliamentary consideration:
related policy proposals
First home buyers’ scheme
Home owners’ proceeds of sale
contributions
Factors related to policy outcomes
Committee consideration
Senate Standing Committee for
Selection of Bills
Senate Standing Committee for the
Scrutiny of Bills
Policy position of non-government
parties/independents
Position of major interest groups and
commentators
Financial implications
Table 2: financial impact of measures
proposed by the Bill, 2016–17 to 2019–20 ($ million)
Statement of Compatibility with Human
Rights
Parliamentary Joint Committee on
Human Rights
Key issues—the FHSS Scheme
Consistency with broader
superannuation policy
Administration and operation of the
scheme
Eligibility to participate in the
FHSS Scheme
Government support payments
Tax treatment of released amounts
Commissioner’s FHSS determination of
release amount
Key provisions
Schedule 2—contributing the proceeds
of downsizing to superannuation
Background
Qualification as main residence
Social security implications
Date of effect
Key provisions amending tax laws
Date introduced: 7
September 2017
House: House of
Representatives
Portfolio: Treasury
Commencement: Various
commencement dates between 1 July 2017 and 1 July 2018 as set out in the
body of this Bills Digest.
Links: The links to the Treasury
Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 1)
Bill 2017, its Explanatory Memorandum and second reading speech can be
found on the Bill’s home page.
The links to the First
Home Super Saver Tax Bill 2017, its Explanatory Memorandum and second reading
speech can be found on the Bill’s home page.
Both Bills can be accessed through the Australian
Parliament website.
When Bills have been passed and have received Royal Assent,
they become Acts, which can be found at the Federal Register of Legislation
website.
All hyperlinks in this Bills Digest are correct as
at October 2017.
Glossary
Table 1: abbreviations and acronyms
APRA |
Australian Prudential
Regulation Authority |
Capital gains tax |
CGT |
Commissioner |
Commissioner of Taxation |
FHSS determination |
First home super saver
determination |
FHSS Scheme |
First Home Super Saver
Scheme |
ITAA 1997 |
Income Tax Assessment Act 1997 |
ITAA 1936 |
Income Tax Assessment Act 1936 |
NANE |
Non-assessable non-exempt |
RSAR 1997 |
Retirement Savings
Accounts Regulations 1997 |
SISA 1993 |
Superannuation Industry
(Supervision) Act 1993 |
SISR 1994 |
Superannuation Industry
(Supervision) Regulations 1994 |
TAA 1953 |
Taxation Administration Act 1953 |
Purpose of
the Bills
This Bills Digest relates to two Bills.
The principal Bill is the Treasury Laws Amendment (Reducing
Pressure on Housing Affordability Measures No. 1) Bill 2017 (Reducing Pressure
on Housing Affordability Bill). Its purpose is twofold:
- the Reducing Pressure on Housing Affordability Bill establishes the
First Home Super Saver Scheme (FHSS Scheme) by amending the Taxation Administration
Act 1953 (TAA 1953), Income Tax
Assessment Act 1997 (ITAA 1997) A New Tax System
(Family Assistance) Act 1999 (FA Act), Child Support
(Assessment) Act 1989 (CSA Act), Higher Education Support
Act 2003, Income
Tax Assessment Act 1936 (ITAA 1936), Social Security Act
1991, Student
Assistance Act 1973, Superannuation
(Government Co‑Contribution for Low Income Earners) Act 2003 and the
Veterans’
Entitlements Act 1986.
- the Reducing Pressure on Housing Affordability Bill amends the ITAA
1997 and the TAA 1953 to allow up to $300,000 from the proceeds of
downsizing a main residence to be contributed to superannuation (‘downsizer
contributions’).
The companion Bill is the First Home Saver Super Tax Bill
2017 (First Home Saver Super Tax Bill). Its purpose is to impose a tax on recipients
of FHSS Scheme amounts if the person has not entered into a contract to
purchase or construct their first home or recontributed the required amount
into superannuation within a specified time.
These legislative measures give effect to the Government’s
2016–17 budget commitment to ‘provide incentives to improve housing outcomes’
for young Australians, and to reduce financial barriers for older Australians
who may wish to sell homes that no longer meet their housing needs.[1]
Structure
of the Bills
The Reducing Pressure on Housing Affordability Bill is
divided into two Schedules that implement each of the two housing-related
superannuation measures:
- Schedule 1—amends the TAA 1953 to
allow individuals who have made voluntary contributions to their superannuation
account to be eligible to have those contributions and their associated
earnings (up to a specified amount) released for the purposes of purchasing or
constructing their first home.
- Schedule 2—amends the ITAA 1997 to
allow individuals aged 65 years or above to use the proceeds of one sale of
their main residence to make contributions of up to $300,000 to their superannuation
provider.
The First Home Saver Super Tax Bill imposes the FHSS tax where
released voluntary contributions of superannuation have not been expended or
recontributed to superannuation within the required time. It is in the form of a
separate Bill to satisfy the requirements of section 55 of the Constitution
that laws imposing taxation must deal only with the imposition of taxation, and
any provision dealing with any other matter is of no effect.
Background
Housing affordability encompasses a persistent and complex
set of issues before the Parliament.[2]
Proposals from both major parties linking access to superannuation and home
ownership date back to 1993, but none have been implemented to date.[3]
The current Government floated a proposal for early access
to superannuation for first-home deposits in 2015 and,[4]
in the 2017–18 Budget, announced the measures reflected in the Bills as part of
a budget package entitled ‘Reducing Pressure on Housing Affordability’.[5]
2016–17 budget announcements
Announcing the FHSS Scheme, the Treasurer, the Hon Scott
Morrison, articulated several arguments backing the measure, noting:
The Government will encourage home ownership by allowing
future voluntary contributions to superannuation made by first home buyers from
1 July 2017 to be withdrawn for a first home deposit, along with associated
deemed earnings.
Concessional contributions and earnings that are withdrawn
will be taxed at marginal rates less a 30 per cent offset. Combined with the
existing concessional tax treatment of contributions and earnings, this will
provide an incentive that will enable first home buyers to build savings more
quickly for a home deposit. Under the measure up to $15,000 per year and
$30,000 in total can be contributed, within existing caps.
Contributions can be made from 1 July 2017. Withdrawals will
be allowed from 1 July 2018 onwards. Both members of a couple can take
advantage of this measure to buy their first home together. This measure is
expected to have a cost to revenue of $250.0 million over the forward estimates
period.
The Government will provide $9.4 million to the Australian
Taxation Office to implement the measure.[6]
According to the Assistant Minister to the Treasurer, the
Hon Michael Sukkar, for most people, the FHSS Scheme could grow savings in
super to a greater extent than through a standard deposit account:
This is due to the concessional tax treatment [...] and the
higher rate of earnings often realised within superannuation. Many employees
will be able to take advantage of salary sacrifice arrangements to make pre-tax
contributions. Individuals who are self-employed or whose employers do not
offer salary sacrifice will be able to claim a tax deduction on personal
contributions, meaning savings effectively come out of pre-tax income. The
amount of earnings that can be released will be calculated using a deemed rate
of return based on the 90-day bank bill rate plus three percentage points
(consistent with the shortfall interest charge). The First Home Super Saver
Scheme will be administered by the ATO, which will determine the amount of
contributions that can be released and instruct superannuation funds to make
these payments accordingly. [7]
The First Home Super Saver Tax Bill is designed to
introduce a tax that will discourage individuals from taking advantage of the
FHSS Scheme by applying withdrawals for any purpose other than to purchase a
first home or to recontribute the savings to their super.[8]
The downsizer contributions measure, announced in the same
budget package, will:
... allow a person aged 65 or over to make a non-concessional
contribution of up to $300,000 from the proceeds of selling their home from 1
July 2018. These contributions will be in addition to those currently permitted
under existing rules and caps and they will be exempt from the existing age
test, work test and the $1.6 million balance test for making non-concessional
contributions.
This measure will apply to sales of a principal residence
owned for the past ten or more years and both members of a couple will be able
to take advantage of this measure for the same home.
This measure reduces a barrier to downsizing for older
people. Encouraging downsizing may enable more effective use of the housing
stock by freeing up larger homes for younger, growing families.
This measure is estimated to have a cost to revenue of $30.0
million over the forward estimates period.[9]
The downsizing contributions will not be subject to
existing caps or tests for other voluntary non-concessional contributions.[10]
Recent
parliamentary consideration: related policy proposals
Following extensive consultation with industry and
stakeholder groups during the 44th Parliament, the Senate Economics References
Committee (Economics Committee) considered similar proposals in its 2015
report, entitled Out
of Reach? The Australian Housing Affordability Challenge.[11]
The Economics Committee noted recommendations from stakeholders that first home
buyers should be allowed to draw on or borrow from their superannuation
balances to contribute to a home deposit but did not recommend such a measure.[12]
The report recommends that the ‘government investigate new policy settings that
will address barriers to downsizing (or 'rightsizing') by retirees’.[13]
The recommendations in the Economics Committee report were
not unanimous: the final report contains a dissenting report from government senators
and additional comments from the Australian Greens and Senator Nick Xenophon.
To give context to the amendments proposed by the Bills
which are the subject of this Bills Digest, the recommendations and dissenting
views related to implementing policies for a first home buyers’ scheme and
downsizing contributions are outlined below.
First home
buyers’ scheme
The Economics Committee inquiry into housing affordability
recommended against providing access to superannuation in order to fund a
deposit on a first home:
While recognising the positive intent underlying such
proposals, the committee believes providing first home buyers with access to
their superannuation would significantly add to demand-side pressures, with the
extra money available to first home buyers ultimately capitalised into higher
housing prices. Moreover, such moves would leave Australian workers with less
money at retirement, and more broadly compromise the integrity of Australia's
retirement savings system.[14]
In their dissenting report, government senators did not
support this recommendation.[15]
Home
owners’ proceeds of sale contributions
The Economics Committee also canvassed views on the creation
of a scheme to enable older Australians to contribute to their super balances
through selling their main residence.
The Economics Committee recommended that ‘the government
investigate new policy settings that will address barriers to downsizing (or ‘rightsizing’)
by retirees, including schemes along the lines of the Housing Help for Seniors
pilot’.[16]
Government senators supported this recommendation in their dissenting report.[17]
Factors
related to policy outcomes
There are a number of factors that may affect the
incentives that the measures intend to create among the first home buyer
demographic and home owners who have reached the preservation age;[18]
in particular to the extent that the policy targets behaviours.
In 2015, the Productivity
Commission found:
Broadly speaking, Australians are less financially literate
in matters relating to superannuation and retirement planning than financial
matters in general.[19]
The Financial Services Council produced a report that concluded
those aged 18–34 are more focused on near-term goals, such as buying a house,
and are generally disengaged in relation to the superannuation system.[20]
Financial considerations have been found to be a
third-order factor in decisions about housing among older Australians, behind
housing features and location.[21]
The Council of the Ageing expressed a concern at their policy summit in June
2017 that there is an ‘inadequate supply of suitable housing for older people
to downsize, while remaining in or close to their pre-existing community’.[22]
Committee
consideration
Senate
Standing Committee for Selection of Bills
In its report to the Senate on 14 September 2017, the Selection
of Bills Committee recommended that the Bill not be referred to any Committee.[23]
Senate
Standing Committee for the Scrutiny of Bills
In its report to the Senate on 13 September 2017, the
Senate Standing Committee for the Scrutiny of Bills made no comment on the
Bill.[24]
Policy
position of non-government parties/independents
The Australian Labor Party (Labor) has stated it will not
support the FHSS Scheme, on the grounds that it will undermine the purpose of superannuation.[25]
There appears to be no stated Labor position on implementing the downsizing
contributions measure as it stands. However, the Shadow Assistant Minister for
Treasury, Matt Thistlethwaite, commented on the Coalition’s housing
affordability policy more broadly:
... the 2017 Budget was a shambolic mess of measures that did
nothing to address key drivers of housing affordability that are in the
Commonwealths [sic] control, such as reform of negative gearing and capital
gains tax concessions.[26]
At the time the measures in these Bills were announced in
the Budget, the Leader of the Australian Greens, Senator Richard Di Natale, took
the position that ‘fresh tax breaks to first-home buyers and baby boomers are
going to further overheat the market and make housing less affordable’.[27]
Senator Nick Xenophon has, in the past, endorsed the idea
that first home buyers should be able to access super for first home deposits.[28]
In March 2017, the Senator reiterated that superannuation should be part of
‘the right balance of solutions’ in addressing housing affordability issues.[29]
Pauline Hanson’s One Nation has issued a policy statement
that aligns with the intent of the FHSS Scheme but that would impose additional
conditions on eligibility; such as an age threshold of below 38 in order to be eligible,
and requirements that the funds be repaid in certain circumstances (for
example, if the first home is sold).[30]
Position of
major interest groups and commentators
Pre-budget submissions from interest groups advocated
policy proposals akin to the budget measures.[31]
General reaction to the budget package—and to these measures in particular—was
mixed.[32]
Positions expressed on the provisions contained in the
exposure draft legislation are discussed in the ‘Key issues and provisions’
section below.
Financial
implications
Over the forward estimates period, the Treasury estimated
that a total of $280 million revenue loss would occur due to the
implementation of the two measures.
Table 2: financial impact of measures proposed by the
Bill, 2016–17 to 2019–20 ($ million)
Measure |
2016–17 |
2017–18 |
2018–19 |
2019–20 |
2020–21 |
First Home Super Saver Scheme |
–(a) |
-50 |
-60 |
-70 |
-70 |
Contributing the proceeds of downsizing to superannuation |
– |
– |
..(b) |
-10 |
-20 |
Total |
– |
-50 |
-60 |
-80 |
-90 |
(a) Nil.
(b) Not zero, but rounded to zero.
Source: Explanatory Memorandum, op. cit., pp. 3–4.
Statement of Compatibility with Human Rights
As required under Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed
the Bill’s compatibility with the human rights and freedoms recognised or
declared in the international instruments listed in section 3 of that Act. The
Government considers that the Bill is compatible.[33]
Parliamentary
Joint Committee on Human Rights
The Parliamentary Joint Committee on Human Rights
considers that the Bill does not raise human rights concerns.[34]
Key issues—the
FHSS Scheme
Some of the issues raised by stakeholders during the
consultation on the exposure draft legislation related to the introduction of
the FHSS Scheme are examined in this section, followed by detail on key
provisions of Schedule 1. The Bill is in largely similar terms to those in the
exposure draft. Some sections have minor changes to provide clarity. Some
significant differences are highlighted under the heading ‘Key provisions’.
While broadly supportive of the policy intent to promote
home ownership and to address the deposit hurdle, some stakeholders have
expressed reservations about the terms of the Bill.[35]
Consistency
with broader superannuation policy
The objective of the FHSS Scheme is to assist first home
buyers to save for a purchase by leveraging concessional tax treatment in the superannuation
system. The FHSS Scheme will release savings from an individual’s
superannuation account subject to a standard determination and procedural rules
applied by the Commissioner of Taxation (Commissioner).
The Government’s Superannuation (Objective) Bill 2016 was
introduced into the House of Representatives on 9 November 2016.[36]
At the time of writing this Bills Digest, the Superannuation (Objective) Bill
is awaiting further consideration by the Senate. The purpose of that Bill is to
establish a legislative framework to guide the development of future
superannuation policy.[37]
The Superannuation (Objective) Bill was cited in a number of submissions[38]
on the grounds that the FHSS Scheme is inconsistent with the goals of the
proposed regulatory framework.[39]
However, it should be noted that proposed subsection 5(3) of the Superannuation
(Objective) Bill 2016 states that the Superannuation (Objective) Act
(when enacted) cannot be used to interpret other Commonwealth laws. That being
the case, any inconsistency would not appear to be relevant.
Industry representatives also cited the Superannuation
Industry (Supervisory) Act 1993 (SIS Act) stating the FHSS
Scheme is inconsistent with the sole purpose test stipulated in section 62 of
that Act.[40]
According to the Australian Prudential Regulation Authority, this test:
... [limits] the provision of superannuation benefits by
regulated superannuation funds to a range of prescribed or approved retirement
or retirement related circumstances. The test is the legislative expression of
the retirement income objective which is the key rationale for superannuation
savings.[41]
The Explanatory Memorandum to the Reducing Pressure on
Housing Affordability Bill notes that the changes made by the Treasury Laws
Amendment (Fair and Sustainable Superannuation) Regulations 2017 will
render FHSS Scheme withdrawals consistent with the sole purpose test as a
payment made for an ancillary purpose in accordance with subsection 62(1)(b)(v)
of the SIS Act.[42]
Concerns were also raised that FHSS Scheme withdrawals
would effectively negate the cumulative effect of compound interest on super balances
over decades. In addition it may ultimately increase house prices and put
further the strain on the age pension.[43]
Proponents of linking superannuation to home ownership
outcomes take a more complementary view of the policy objectives as ‘components
of a retiree’s “nest egg” and not competing products’:
By buying earlier in life retirees have every prospect of
having a higher quality on retirement and a larger ‘nest egg’ on downsizing.[44]
Administration
and operation of the scheme
The operation of the FHSS Scheme commences from 1 July 2017,
enabling individuals to make voluntary contributions from that date. From
1 July 2018, individuals can request that the Commissioner issue a release
authority for FHSS contributions from superannuation—known as a first home
super saver determination (FHSS determination).
The ability to effectively withdraw FHSS contributions
from 1 July 2018 coincides with changes to Division 131 of the ITAA 1997
brought about through the enactment of the Treasury Laws Amendment (Fair and
Sustainable Superannuation) Act 2016.[45]
These provisions and related Regulations bring into effect changes to the
standard determination and release rules that will also apply to the operation
and administration of the FHSS Scheme.
Considerations particular to determining the release of a total,
maximum amount under the FHSS Scheme include:
- eligibility criteria with respect to individuals and financial
contributions
- limitations on eligible contributions (a $15,000 limit applies in
any one financial year and a $30,000 limit applies to total contributions
that can be eligible across all years)
- distinction between voluntary concessional and non-concessional
contributions with respect to existing caps and applicable discounts
- the order in which concessional and non-concessional
contributions are counted
- the inability for contributions in respect of defined benefit
interests or to constitutionally protected funds to be released and
-
the method applicable to calculate associated earnings on
releasable FHSS contributions.[46]
Some stakeholders used the example of the discontinued First
Home Saver Account scheme to illustrate the potential administrative and
operational impact on funds. A related concern was that the administrative
architecture of the scheme could be optimised—through greater reliance on
financial providers, for example—and does not sufficiently mitigate the risk of
misapplication of released FHSS Scheme monies.[47]
Eligibility
to participate in the FHSS Scheme
Eligible contributions for an individual are:
- ‘voluntary’ employer contributions (such as a salary sacrificed
contribution) as a concessional or non-concessional contributions and
- contributions within the relevant concessional and
non-concessional contribution caps.[48]
Participating individuals will also have to fulfil
conditions of the FHSS Scheme:
- they are 18 years or over, and have not used the FHSS Scheme
before and never owned residential property in Australia[49]
-
they will have 12 months after releasing the FHSS Scheme amount
to sign a contract to purchase or construct residential premises (including
vacant land to be built and occupied as a residence, but not a houseboat or
motor home). The Commissioner may extend this period by up to 12 months[50]
- they will need to 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[51]
- they will have to notify the Commissioner within 28 days in the
approved form after they enter into a contract to purchase or construct
residential premises.[52]
The failure to meet this condition is that amounts paid are to be re-contributed
to superannuation.[53]
Otherwise the person is liable for 20 per cent FHSS tax (due within 21 days of
an assessment)[54]
- failure to pay an amount of tax so assessed by the time it is due
and payable, will oblige the individuals to pay a General Interest Charge (GIC)
for each day in the period over which the amount is due and unpaid.[55]
Government
support payments
An FHSS release amount will be excluded from the means
tests as followed in other forms of government assistance to individuals,
including social security payments.[56]
Tax
treatment of released amounts
The amount released from an individual’s super account,
may comprise three components:
- 85
per cent of concessional contributions (reflecting the 15 per cent contributions
tax paid by the fund)[57]
- non-concessional
(after-tax) contributions[58]
and
- associated
earnings.[59]
Accordingly, the non-concessional contributions in the
released amount will be treated as non-assessable non-exempt earnings income (NANE)
for the individuals.[60]
Any amounts related to the individual’s FHSS-eligible concessional
contributions, and the total associated earnings calculated in respect of any
contributions, will be treated as assessable income for tax purposes.[61]
The rate of tax associated with this part of released amount will, however, be
at the individual’s marginal rate of tax but with a tax offset of 30 per cent:[62]
For example, a taxpayer on the 37% tax rate with an income
between $87,000 and $180,000 would pay 7% (plus Medicare levy) on the withdrawn
amount. Of course, the original contribution would have also been subject to
the 15% contributions tax on its way into the fund.
The ‘associated earnings’ compound daily at the SIC rate (eg
4.73% for Jul–Sep 2017) from when the contributions are made up until the
date the FHSS released amount is determined. Contributions will be deemed to
have been made at the start of the month they are made (or
1 July 2017 for contributions during the 2017-18 start year). This
will compound up until the date the released amount is determined.
To calculate contributions (and associated earnings) towards
the annual and total FHSS contribution limits, ordering rules apply whereby
earlier contributions will count before later ones. This will generally
maximise the amount of associated earnings. However, within the same year any
non-concessional contributions will be counted before any concessional
contributions.[63]
Commissioner’s
FHSS determination of release amount
Upon receiving a formal request by an individual with a declaration
of eligibility to purchase or construct residential premises, the ATO will
issue a first home saver super determination (FHSS determination)
and release authority specifying the maximum amount to be released to the ATO.[64]
The Commissioner is required to withhold an amount of tax
before releasing the FHSS amount to the individual. This is designed to assist
the individuals in meeting any increased tax burden that they may face as a
result of having a potentially larger amount included in their assessable
income for an income year as a result of such amounts so released.[65]
Key
provisions
The FHSS Scheme is guided by the provisions of a proposed
Division 313 of the ITAA 1997 [66]
and proposed Division 138 of the TAA 1953.[67]
This section details the amendments to those tax laws and other existing
legislation which have not been detailed above.
Part 1 of Schedule 1 adds Division 138 at
the end of Part 3–20 in Schedule 1 of the TAA 1953. The new Division
containing provisions that will determine the FHSS Scheme and underpin the
operational arrangements of such scheme: determination of the scheme, determination
of maximum release amount, treatment of amounts so released, and individual
obligations with such released amounts.
Proposed subsections 138-10(1) and 138-10(2) of
Schedule 1 to the TAA 1953 define the maximum amount that an individual
can request to have released under the FHSS Scheme (the FHSS maximum
release amount), as well as the operational mechanism behind such
release. There are various components that are calculated in working out that release
amount. These components are featured as concessional contributions,
non-concessional contributions and notional earnings that are associated with
each contribution. Most notably, ascertaining the tax applicable to a taxpayer
after the amounts are released will depend on the amount of the concessional
contributions and associated earnings that are covered by a FHSS determination.
Proposed subsection 138-10(4) of Schedule 1 to the TAA
1953 allows the Commissioner to amend or revoke a FHSS determination at any
time before a release authority is issued under the FHSS Scheme.
Under proposed subsection 138-15 of the TAA 1953
individuals have recourse to review under the provisions set out in Part IVC of
that Act, if they are dissatisfied with a FHSS determination by the
Commissioner made in relation to them. The review rights are in addition to those
already available in relation to excess concessional contributions
determinations, excess non-concessional contributions determinations, and
excess transfer balance determinations under the provisions of section 97-10,
section 97-35 and section 136-15 of the TAA 1953, In such cases, the
individual will have the opportunity to object to the determination, and
provide the Commissioner with any additional information evidencing why the
determined amount was incorrect’.[68]
Under proposed Subdivision 138-B in Schedule 1 of the
TAA 1953 there are limits on the amount of contributions that may
be eligible for release. The FHSS maximum release amount includes eligible
non-concessional contributions, 85 per cent of the eligible concessional
contributions, and associated earnings. According to the operative provisions,
this ‘FHSS releasable contributions amount’ must be identified by the
Commissioner in making a FHSS determination under the proposed section
138-25 and section 138-30 in Schedule 1 of the TAA 1953.
The determination of eligible contributions and the limit of
the amount to be released under the FHSS Scheme is dealt with by proposed
section 138-35 in Schedule 1 of the TAA 1953. The amount of
contributions for an individual first home buyer that may be released is
$30,000 maximum and $15,000 in a given financial year.[69]
Proposed paragraphs 138-35(2)(a) (b) and (c) enumerate the eligibility
criteria for the release of such an amount. These limitations ensure that
contributions to a superannuation fund made by other entities in respect of a
taxpayer will not be considered towards the release amount.
Proposed subsections 138-35(3) and (4) in Schedule
1 of the TAA 1953 establish rules that determine the maximum amount
available to be released in a situation where an individual exceeds one of the
contribution caps in a financial year. In such a situation, the excess amount
will be ineligible to count towards the FHSS releasable contributions amount.
Proposed subsections 138-40(1) (2) and (3) in Schedule
1 of the TAA 1953 provide guidance as to the method of calculation of
the associated earnings with the releasable contributions and the time period
of implementing it. This is to allow the Commissioner to follow the provisions
as part of the determination process of the FHSS Scheme.
Part 2 of Schedule 1 of the Reducing Pressure on
Housing Affordability Bill makes consequential amendments to the ITAA 1997
and the TAA 1953 in order to implement the tax effects of the FHSS
Scheme.
The FHSS tax has been designed to ensure that
individuals who have neither acquired their first home nor recontributed an
amount into superannuation, do not obtain any tax benefit by accessing FHSS
Scheme.
Item 10 of Part 2 of Schedule 1 of the
Reducing Pressure on Housing Affordability Bill inserts proposed section
290-168 into the ITAA 1997 so that an individual who notifies
the Commissioner that they have made non-concessional contributions instead of
entering into a contract to purchase or construct their first home, is not able
to claim a deduction in respect of the non-concessional contributions to which
the notification related.
Item 12 of Part 2 of Schedule 1 of the Reducing
Pressure on Housing Affordability Bill inserts proposed Division 313 in
the ITAA 1997 to determine the tax treatment of the scheme on individual
taxpayers when they opt for FHSS Scheme. The new Division will operate in
conjunction with Division 131 of the TAA 1953 that determines the
FHSS Scheme.
Proposed subsection 313-20(1) of the ITAA 1997
provides for the treatment of concessional contributions and associated
earnings that are identified in the FHSS determination to be included in an
individual’s assessable income in the financial year in which the request to
release the amount was made. However, proposed subsections 313-20(2) and (3)
allow the Commissioner to make an adjustment by reducing the assessable
income by any difference between the total amount that was actually released
and the FHSS maximum release amount specified in the relevant determination,
subject to the amount being not negative at any stage.
Proposed section 313-25 of the ITAA 1997 will entitle
an individual under the FHSS Scheme to a non-refundable tax offset of 30 per
cent of their assessable FHSS released amount.
Proposed subsections 313-35 (1) and (2) of the
ITAA 1997 set out the requirements that an individual taxpayer must
fulfil in relation to purchasing or constructing a house under the Scheme. The
individuals will have to enter into a contract to purchase or construct a residential
premise within 12 months of the time that their first amount was released
for the purpose, with a provision that the Commissioner may extend the time
period for entering into such contract by up to 12 months.
Proposed sections 313-40 of the ITAA 1997 require
a person to notify the Commissioner, in the approved form, within 28 days, or
such longer period as the Commissioner allows, after the person enters into the
contract to buy or construct premises.
Proposed subsections 313-50(1) and (2) of the ITAA
1997 allow first home buyers to notify the Commissioner if they
re-contribute an amount into superannuation because they could not get into a
contract or build the house. The notification can only be made if the
individual makes one or more non-concessional contributions during the period
that they had to enter into a contract.[70]
In addition, the total amount of their non-concessional contributions must be
at least equal to their assessable FHSS released amount less any amounts that
were withheld by the Commissioner.[71]
Proposed section 313-60 of the ITAA 1997 ensures
that a person who is entitled to receive amounts under the FHSS Scheme is
liable for first home super saver tax if they do not enter into a contract to
purchase or construct their first home or recontribute the required amount into
superannuation..
Clauses 3 and 4 of the First Home Super Saver Tax
Bill impose the first home super saver tax at 20 per cent of an individual’s
assessable FHSS released amounts.
Item 17 of Part 2 of Schedule 1 to the Reducing
Pressure on Housing Affordability Bill inserts paragraph 155-5(2)(k)
into Schedule 1 of the TAA 1953 to utilise the standardised
procedures that are available under the provisions of Division 155 regarding
making, amending and reviewing assessment.
Part 3 of Schedule 1 makes consequential
amendments to a number of other statutes to synchronise the FHSS Scheme with
the provisions of these Acts.
Schedule
2—contributing the proceeds of downsizing to superannuation
Background
Schedule 2 of the Bill implements the Budget 2017–18
measures that will allow people aged 65 or over to make additional
non-concessional contributions up to $300,000 from the proceeds of selling
their home from 1 July 2018.
Industry submissions on the exposure draft legislation
were supportive of the measure, with some reservations that have been addressed
in the Bill.[72]
Issues noted in submissions that appear to remain are:
- the measure would require individuals to seek financial advice
given potential implications for age pension entitlements[73]
and
- indexation
applicable to other super contributions caps is absent from the measure.[74]
The new special downsizing contribution cap has the
following features:
- the existing voluntary contribution rules for people aged 65 and
older will not apply[75]
- restrictions
on non-concessional contributions for people with balances above $1.6 million
will not apply[76]
- will
apply to a principal place of residence held for a minimum of 10 years[77]
- members
of a couple can contribute a total of $600,000 to superannuation through the
downsizing cap[78]
- the contribution will be supplementary to the existing
contribution rules and concessional and non‑concessional caps.[79]
The other important feature of the measure is that either
the individual or their spouse must have owned the home for a minimum of 10
years up to the point of sale. If the person's spouse is not on the title with
them, both can still make a downsizer contribution.[80]
Caravans, houseboats and mobile homes are specifically excluded.[81]
A period of 90 days after the home changes ownership
(generally the date of settlement) will be the window period when a person can
make multiple downsizer contributions, provided that they do not exceed the
$300,000 cap and meet all other criteria. ‘However, a person cannot make a
subsequent downsizer contribution, even if they sell another qualifying house’.[82]
A person is not required to make any subsequent purchase
of another dwelling after selling their home and making a downsizer
contribution. This means that a downsizer can move into any living situation
suitable for them, regardless of its size or cost.[83]
The ITAA 1997 creates two categories of
superannuation contributions for taxation purposes: concessional and
non-concessional. Concessional contributions are generally from either employer
contributions or employee contributions upon which a deduction has been
claimed. Non-concessional contributions are however made from after-tax income
of an employee and are subject to a maximum cap.[84]
Examples
Helping George and Jane downsize
George and Jane, both retired
and aged 76 and 69, sell their home to move into more appropriate
accommodation. The sale proceeds are $1.2 million. They can both make a
non-concessional contribution into superannuation of $300,000 ($600,000 in
total), even though Jane no longer satisfies the standard contribution work
test and George is over 75. They can make these special contributions
regardless of how much they already have in their accounts.[85]
Helping John and Sarah downsize
John and Sarah, who are
still working part-time at age 65, decide to sell the large family home after
all the children move out. The sale proceeds are $1.4 million. They are both
able to make a non-concessional contribution of $300,000 ($600,000 in total)
into superannuation. This is regardless of how much they have in their
accounts already. They may also be able to make additional contributions to
their superannuation using the sale proceeds under standard contribution
arrangements.[86]
|
Qualification
as main residence
Under the existing provisions of the ITAA 1997
regarding capital gains tax, the qualifying condition by reference to the main
residence capital gains tax (CGT) exemption (in whole or part) recognises that
over the period that an individual owns a dwelling they may not
always reside in that dwelling for certain reasons. ‘Main residence is not
defined, and takes its ordinary meaning.’[87]
This suggests that for the purpose of this measure, owners
can continue to treat a dwelling as their main residence even if they are
absent from their main residence (for example, to travel, work or move into a
retirement village). If the dwelling is used for income producing purposes,
this absence is limited to six years. If not there is no time limit for
absence.[88]
In this respect, a downsizing contribution should be available for a home
unless it was an investment property the person has never lived in as their
main residence.
The qualifying condition by reference to main residence
CGT exemption (in whole or part) means that a downsizer contribution will also
apply in relation to land adjacent to a main residence (such as a garden up to two
hectares). It will also apply to individuals with a legal or equitable interest
or right or licence to occupy a dwelling.[89]
Social
security implications
Under the existing provisions of superannuation law, the family
home is exempt from the age pension assets test. Under the arrangements for downsizer
contributions, any sale proceeds contributed to a superannuation fund will
count toward the assets test. This being the case, it has been suggested that ‘a
downsizer contribution will mainly be of interest to those who are already
above the Age Pension assets test who have total super account balances above
$1.6m’.[90]
In a recent analysis of issues contributing to Australia’s
housing affordability problem, the Committee for Economic Development of
Australia put forward a suite of recommendations; including that policymakers
should ‘further relax rules around means testing of income received from
downsizing in situations where it results in greater housing density’.[91]
Date of
effect
The measure will only apply to home sales where the contract
of sale is entered into (exchanged) on or after 1 July 2018. This
means that any exchange of contracts occurring before 1 July 2018
will not be captured by the proposed downsizer provisions even though the
settlement of the sale occurs on or after 1 July 2018.
Key provisions
amending tax laws
The provisions in Schedule 2 to the Reducing Pressure on
Housing Affordability Bill amend the ITAA 1997 and the TAA 1953
in order to provide for an operational framework for the downsizing to
superannuation scheme.
Item 3 of Schedule 2 inserts proposed
subparagraph 292-90(2)(c)(iiia) into the ITAA 1997 to exclude
a downsizer contribution from being treated as a non-concessional contribution.
This means it will not be counted towards an individual’s non-concessional cap.
Item 2 of Schedule 2 inserts proposed section 290-167
into the ITAA 1997 to accord with this provision so that a contributing
individual cannot claim a deduction for any such contributions.
Item 4 of Schedule 2 adds proposed section
292-102 to the ITAA 1997 to determine the criteria for a downsizer
contribution. The criteria stipulates that to be eligible for the scheme an
individual has to be aged 65 years or older, the contribution must be in
respect of the proceeds of the sale of a qualifying dwelling of ten years
residence in Australia, and the contribution has been made within 90 days of
the disposal of the dwelling.
Item 5 of Schedule 2 is a consequential
amendment which adds the definition of related spousal interest
to subsection 995-1(1) in the ITAA 1997. Related spousal interest
has the meaning given by subsection 292-102(4).
Item 6 of Schedule 2 adds item 11 to
the table in subsection 355-65(3) in Schedule 1 of the TAA 53. Its effect
is to authorise the Commissioner to notify the superannuation funds that
received the downsizer contributions, to ascertain that the amount so
contributed not to be treated as such if the individuals are found to be in
breach of the criteria specified in section 292-102.
[1]. M
Sukkar, ‘Second
reading speech: 'Treasury Laws Amendment (Reducing Pressure on Housing
Affordability Measures No. 1) Bill 2017’, House of Representatives, Debates,
7 September 2017, p. 9607.
[2]. M Thomas and A Hall, ‘Housing affordability in Australia’, Briefing
book: key issues for the 45th Parliament, Parliamentary
Library, Canberra, 2016, pp. 86—89; see also T Dale, ‘Housing affordability and home ownership: previous inquiries and
reports’, FlagPost, Parliamentary Library blog, 29
March 2017.
[3]. For details, see T Dale, ‘Superannuation for housing deposits and the “deposit gap”’, FlagPost, Parliamentary Library blog, 4 April 2015.
[4]. J Hockey (Treasurer), ‘Question: Superannuation’, House of
Representatives, Debates, 16 March 2015, p. 2369.
[5]. Australian
Government, ‘Part 2:
expense measures’, Budget measures: budget paper no. 2: 2016–17,
May 2017. For a summary of the budget package, see H Portillo-Castro, ‘Housing
affordability measures’, Budget
review 2017–18, Research paper, Parliamentary Library, Canberra,
19 May 2017, pp. 32–36.
[6]. Ibid.
[7]. M
Sukkar, ‘Second
reading speech: Treasury Laws Amendment (Reducing Pressure on Housing
Affordability Measures No. 1) Bill 2017’, House of Representatives, Debates,
7 September 2017, p. 9607.
[8]. M Sukkar, ‘Second reading speech: First Home Super Saver Tax Bill 2017’, House of Representatives, Debates, 7 September 2017,
p. 9609.
[9]. Australian Government, Budget
measures: budget paper no. 2: 2016–17, 9 May 2017, p. 28.
[10]. M Sukkar, ‘Second
reading speech: Treasury Laws Amendment (Reducing Pressure on Housing
Affordability Measures No. 1) Bill 2017’, op. cit., p. 9608.
[11]. Senate Economics References Committee, Out
of reach? the Australian housing affordability challenge, The Senate,
Canberra, May 2015, pp. 174–76 and 194–98.
[12]. Ibid.,
p. 186.
[13]. Ibid.,
recommendation 17, p. xxvi.
[14]. Ibid., p. 186.
[15]. Coalition Senators, ‘Dissenting report by Government senators’,
Dissenting report, Senate Economics References Committee, Out of
reach? the Australian housing affordability challenge, op. cit., p. 453.
[16]. Senate Economics References Committee, Out
of reach? the Australian housing affordability challenge, op. cit., p. 421.
[17]. Ibid.
[18]. Australian
Taxation Officer (ATO), ‘Preservation
of super’, ATO website, last modified 1 December 2015.
[19]. Productivity Commission (PC), Superannuation
policy for post-retirement: supplementary papers, Research paper, 2, PC, Canberra, July 2015, p. 183.
[20]. Financial Services Council, Millennials’ engagement with superannuation, July 2017.
[21]. B Judd, E Lie, H Easthope, L Davy and C Bridge, Downsizing
amongst older Australians, Australian Housing
and Urban Research Institute (AHURI), final report, 214, AHURI, Melbourne, 7
January 2014.
[22]. Council on the Ageing, The
forgotten faces of the looming housing crisis: older Australians, media
release, 22 June 2017.
[23]. Senate
Standing Committee for Selection of Bills, Report,
11, 2017, 14 September 2017, p. 4.
[24]. Senate
Standing Committee for the Scrutiny of Bills, Scrutiny
digest, 11, 2017, 13 September 2017, p. 24.
[25]. K
Gallagher (Shadow Minister for Small Business and Financial Services) and D
Cameron (Shadow Minister for Housing and Homelessness), Sco-Mo
at odds with tax office over first home super scheme, joint media
release, 25 July 2017; see also J Chalmers (Shadow Minister for
Finance), Transcript
of interview with Rafael Epstein: ABC 774 Melbourne, media release, 19
July 2017.
[26]. M
Thistlethwaite, Address
to 2017 Social and Affordable Housing Symposium: Brisbane, 25 September
2017.
[27]. R
Di Natale (Leader of the Australian Greens), Budget
2017: Australian Greens 2017 Budget, media release,
9 May 2017.
[28]. N
Xenophon (Leader of the Nick Xenophon Team), Home
affordability: a super idea, media release, 28 July 2014.
[29]. N
Xenophon (Leader of the Nick Xenophon Team), The
political will is lacking to fix our housing affordability crisis,
media release, 9 March 2017.
[30]. Pauline
Hanson’s One Nation (PHON), Home
ownership for young Australians, PHON party document,
1 August 2016.
[31]. Real Estate Institute of Australia (REIA), Submission to Treasury, Pre-budget
submission 2017–18, January 2017, p. 11; Housing Industry Association
(HIA), Submission to Treasury, Pre-budget submission 2017–18, 19 January 2017,
p. 9; National Seniors Australia, Submission to Treasury, Pre-budget submission 2017–18, n.d., p. 17.
[32]. Property Council of Australia, Budget
tackles fundamentals of housing affordability, media release, 9 May
2017; Property Council of Australia, Downsizing
super scheme a big step forward, media release, 10 May 2017; Urban
Development Institute of Australia, Turnbull
budget putting Australians' housing needs first, media release, 10 May
2017; Housing Industry Association, Budget
is a step to housing affordability, media release, 9 May 2017; S
Eslake, ‘Housing
affordability and the 2017–18 budget: a missed opportunity’, John
Menadue—Pearls and irritations, blog, 19 May 2017; Australian Institute of
Company Directors (AICD), ‘Federal
Budget 2017: Stephen Walters’ analysis’, AICD website,
9 May 2017; The Tax Institute, ‘Good
Budget, Bad Budget: full of positive intentions but a missed opportunity for
tax reform’, The Tax Institute website, 9 May 2017; KPMG, ‘Federal
Budget 2017: A review of the Budget’s major business implications’, KPMG
website, May 2017.
[33]. The
Statement of Compatibility with Human Rights can be found at pages 40–41 and 61
of the Explanatory
Memorandum to the Bill.
[34]. Parliamentary
Joint Committee on Human Rights, Report,
10, 2017, 12 September 2017, p. 33.
[35]. Australian Government, ‘Consultation:
housing-related superannuation measures’, Treasury
website, 2017.
[36]. Parliament
of Australia, Superannuation
(Objective) Bill 2016 homepage, Australian Parliament website.
[37]. Explanatory
Memorandum, Superannuation (Objective) Bill 2016, p. 11.
[38]. Financial Planning Association of Australia (FPA), Submission
to Treasury, Consultation into housing-related superannuation measures, 4 August
2017, p. 2; Industry Super Australia, Submission to Treasury, Consultation
into housing-related superannuation measures, 4 August 2017,
p. 4; Australian Institute of Superannuation Trustees (AIST), Submission
to Housing related superannuation measures, 4 August 2017, p.1.
[39]. The report of the Senate Economics Legislation Committee
summarises various stakeholder positions on the intent and proposed
implementation of a superannuation objective. See also K Swoboda, Superannuation (Objective) Bill 2016,
Bills digest, 69, 2016–17, Parliamentary Library, Canberra, 2017.
[40]. FPA, op. cit.; Industry Super Australia, op. cit.; and AIST,
op. cit.
[41]. Australian Prudential Regulation Authority (APRA), The sole purpose test: superannuation circular: no. III.A.4,
APRA, Sydney, February 2001, p. 1.
[42]. Explanatory
Memorandum, Treasury Laws Amendment (Reducing Pressure on Housing
Affordability Measures No. 1) Bill 2017, pp. 11–12, paras 1.47–1.53.
[43]. FPA, op. cit., pp. 1–2.
[44]. REIA, op. cit., p. 11.
[45]. Explanatory
Memorandum, Treasury Laws Amendment (Reducing Pressure on Housing
Affordability Measures No. 1) Bill 2017, pp. 7–8.
[46]. Ibid.,
pp. 15–26.
[47]. AIST, op. cit.; Association of Superannuation Funds of
Australia (ASFA), Consultation on the Housing-Related Superannuation
Measures: Draft legislation, Submission
to Treasury, 7 August 2017; Chartered Accountant of Australia and New Zealand
(CAANZ), Housing related superannuation measures, Submission
to Treasury, 4 August 2017, CAANZ website.
[48]. Explanatory
Memorandum, Treasury Laws Amendment (Reducing Pressure on Housing
Affordability Measures No. 1) Bill 2017, p. 17.
[49]. TAA
1953, Schedule 1, proposed section 138-10.
[50]. ITAA
1997, proposed paragraph 313-35(1)(a).
[51]. ITAA
1997, proposed paragraph 313-35(1)(c) and (d).
[52]. ITAA
1997, proposed section 313-40.
[53]. ITAA
1997, proposed Subdivision 313-D.
[54]. ITAA
1997, proposed Subdivision 313-E.
[55]. ITAA
1997, proposed sections 313-65 to 313-75; S Jones, ‘First Home Super
Saver Scheme—Bills introduced’, Thomson Reuters, Weekly Tax Bulletin,
38, 8 September 2017, para [1334].
[56]. Explanatory
Memorandum, Treasury Laws Amendment (Reducing Pressure on Housing Affordability
Measures No. 1) Bill 2017, pp. 38–9.
[57]. TAA
1953, Schedule 1, proposed paragraph 138-30(1)(b).
[58]. TAA
1953, Schedule 1, proposed paragraph 138-30(1)(a).
[59]. TAA
1953, Schedule 1, proposed section 138-40.
[60]. ITAA
1997, note 2 to proposed subsection 313-20(3).
[61]. ITAA
1997, proposed Subdivision 313-B.
[62]. ITAA
1997, proposed section 313-35.
[63]. Jones,
‘First Home Super Saver Scheme—Bills introduced’, op. cit.
[64]. TAA
1953, Schedule 1, proposed section 138-10.
[65]. TAA
1953, Schedule 1, proposed section 12-460.
[66]. Inserted
by item 12 of Part 2 in Schedule 1 to the Reducing Pressure on Housing
Affordability Bill.
[67]. Inserted
by item 1 of Part 1 in Schedule 1 to the Reducing Pressure on Housing
Affordability Bill.
[68]. Explanatory
Memorandum, Treasury Laws Amendment (Reducing Pressure on Housing
Affordability Measures No. 1) Bill 2017, p. 13.
[69]. TAA
1953, Schedule 1, proposed paragraphs 138-35(1)(a) and (b).
[70]. ITAA
1997, proposed paragraph 313-50(1)(b).
[71]. Explanatory
Memorandum, Treasury Laws Amendment (Reducing Pressure on Housing
Affordability Measures No. 1) Bill 2017, p. 33.
[72]. For
example, FPA noted a lack of clarity in the exposure draft about CGT treatment
of an asset predominantly used for running a business but that includes a main
residence (such as a farm). This is covered in the Reducing Pressures on
Housing Affordability Bill at section 292-101(1)(b); see also the
Explanatory Memorandum, p. 50, para. 2.46.
[73]. AIST, op. cit.
[74]. FPA, op. cit.; ASFA; op.cit. (The ASFA submission also raised
the issue of indexation in relation to the FHSS Scheme caps.)
[75]. That
is, the work test for 65–74‑year-olds. ITAA 1997, section 290-165
prohibits contributions for those aged 75 and over. See also: Australian
Taxation Office (ATO), ‘Contributions
you can accept’, ATO website, last modified 23 March 2016.
[76]. ITAA
1997, section 295-387 contains the restriction.
[77]. ITAA
1997, proposed subsection 292-102(2).
[78]. ITAA
1997, proposed subsections 292-102(3) and (4).
[79] Australian
Government, Budget
2017: reducing pressure on housing affordability, fact sheet 1.5, 9 May
2017.
[80]. ITAA
1997, proposed paragraph 292-102(1)(c).
[81] ITAA
1997, proposed paragraphs 292-102(1)(f).
[82] Jones,
‘Downsizing a home: super contributions up to $300,000—Bill introduced’, Thomson
Reuters, Weekly
Tax Bulletin, 38, para [1335].
[83] Ibid.
[84] Explanatory
Memorandum, Treasury Laws Amendment (Reducing Pressure on Housing
Affordability Measures No. 1) Bill 2017, p. 44.
[85] Australian
Government, Reducing barriers to downsizing, op. cit.
[86] Ibid.
[87]. Explanatory
Memorandum, Treasury Laws Amendment (Reducing Pressure on Housing
Affordability Measures No. 1) Bill 2017, p. 45.
[88] ITAA
1997, section 118-145.
[89] ITAA
1997, section 118-130.
[90]. S
Jones, ‘Downsizing a home: super contributions up to $300,000—Bill introduced’,
op. cit.
[91]. Committee for Economic Development of Australia (CEDA), Housing affordability, CEDA,
Melbourne, August 2017, pp. 10–11.
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