Breaking Down The Budget for Superannuation

[ What does the federal budget mean for you and your super? ]
by Megan Kelly Published

As expected, there have been very few changes to superannuation announced in the 2017 Budget. The government is standing by the changes passed in November which will come into effect from 1 July 2017.

They have renewed their attack on the Limited Recourse Borrowing Arrangements in Super, tweaking their recently released draft legislation. This is designed to shut down a loophole in the way last year’s super changes interact with super fund borrowing. However, it could be argued that they are unnecessary and inequitable.

Helping first home owners is a key theme in this budget but they haven’t bowed to pressure to allow access to guaranteed super amounts to help fund deposits for the first home. Instead they have re-introduced the concept of using the super system to help first home-owners save for this deposit.

They have also introduced new incentives for senior Australians looking to downsize their family homes in retirement. This is seen as a measure to increase availability of family homes in popular suburbs but is probably somewhat in contradiction of the recent limits placed on how much can be contributed to super.

To read more on the super changes, please see our detailed breakdown below.

1. Limited Recourse Borrowing & the Total Super Balance Rules

Draft legislation was recently released which will see any limited recourse borrowing arrangements from 1 July 2017, included when calculating an individuals $1.6million Total Super Balance Cap.

For example:  

Bob has a self-managed super fund with $1million. He has purchased a commercial property via a limited recourse borrowing for $2million.

While Bob’s super fund accounts will look like this:

Property at Value

$2,000,000

Bank Loan

[$1,000,000]

Balance in the Super Fund

$1,000,000

For the purpose of calculating Bob’s Total Super Balance, his account will look like this:

Balance of Super Account

$1,000,000

Add Back: Bank Loan

$1,000,000

Bob's Total Super Balance 

$2,000,000

Effectively, they are ignoring the debt on the property as part of Bob’s total super balance. This means Bob is locked out of making any further non-concessional contributions to super despite him only really having $1,000,000 in super [which is less than the $1.6m Total Super Balance Cap].

The original draft legislation released last month, indicated that this new measure would only apply to new borrowing arrangements entered into from 1 July 2017. However, the 2017 budget announcement has suggested that can apply to existing super fund borrowing arrangements as well.

[We know that the SMSF sector as a whole finds this legislation quite inequitable and we expect that there will be significant lobbying against these measures.]

2. First home super saver scheme

From 1 July 2017 this proposal will allow first home owners to withdraw any voluntary contributions above the standard employer super guarantee contributions to fund the deposit of their first home.

A first home owner can contribute up to an extra $15,000 per year [above their guaranteed employer super contributions] up to $30,000 in total. It will go into a separate account within their existing super fund.

From 1 July 2018 they will then be able to withdraw this account at a concessional tax rate being their marginal tax rate less 30%].

[While this measure is available to both members of a couple, it hardly goes very far when saving for a home deposit.]

3. $300,000 non-concessional cap when Downsizing your home

A further measure to help with the housing affordability/availability, is the $300,000 non-concessional cap for people aged 65 who are downsizing their principal place of residence which will be offered from 1 July 2018.

This measure will be available to individuals over 65, who have owned their home for more than 10 years.

This will be a great planning tool for people over 65 and that have been locked out of making further super contributions because they weren't working or already over the $1.6million test.

[However, it does add to their assets for the age pension test so be careful and financial advice should be taken.]

The Conclusion

The budget announcements for super, were pretty ‘light on’ this year - but that is probably because superannuation has already been through so much change.  

If the changes to the limited recourse borrowing arrangements go through as per the budget, the impact will be widely felt.

The key focus for now however, should remain squarely on getting ready for the new super rules which come into effect from 1 July 2017.

What does the federal budget really mean for you and your super? You can send me an email at m.kelly@businessdepot.com.au or reach me at [07] 3193 3020 and ask me anything.

To read more on these changes please see our previous super articles using the below links or call Megan Kelly on 07 3193 3020.

How do the superannuation changes impact high income business 

How the $1.6m cap on tax free pensions will work

What Else?

Are you in business?  Check our Michael Garrone's blog on what the 2017 Budget means for SME's and Family Businesses.

Are you a real estate agent or work in a real estate business?  Check out John Knight's blog on what the 2017 Budget means for real estate.

General Advice Warning:

Information provided on this website is general in nature and does not constitute financial advice. Every effort has been made to ensure that the information provided is accurate. Individuals must not rely on this information to make a financial or investment decision. Before making any decision, we recommend you consult a financial adviser to take into account your particular investment objectives, financial situation and individual needs.

Depot Superannuation Pty Ltd is a corporate authorised representative (No 1240831) of Hunter Green Pty Ltd AFSL 225962.

Megan Kelly
read more by Megan Kelly

Megan’s skills in self-managed super to provide both the accounting and strategic advice solutions for clients. Her many years working with business owners on their SMSFs has meant that she understands the value of including their superannuation in a business owners overall financial plan.

Her passion is to assist client’s in taking control of their future, through supporting them in making decisions in relation to the self-managed fund and their retirement. Megan regularly provides advice in relation to investment structuring, SIS compliance as well as pension and retirement planning.

Megan has also provided specialist support in relation to estate planning, family law disputes and compliance issues. She is a member of the SMSF Association Queensland Community, and a valued member of the network of SMSF specialists.

Megan Kelly is an authorised representative [No. 1240833] of Hunter Green Pty Ltd AFSL 225962. Your Adviser may offer you services through Depot Superannuation Pty Ltd which is a separate business. Although the same Adviser may offer you services under the above businesses, each business is solely and separately responsible for the advice they each provide. In particular, Hunter Green is only responsible for the financial planning services provided by Megan Kelly.

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