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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.
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.
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
Balance in the Super Fund
For the purpose of calculating Bob’s Total Super Balance, his account will look like this:
Balance of Super Account
Add Back: Bank Loan
Bob's Total Super Balance
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.]
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.]
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 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 firstname.lastname@example.org or reach me at  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.
Information provided in this blog and on this website is general in nature and does not constitute financial advice. Every effort has been made to ensure that the information is accurate, but information may become outdated as legislation and new government announcements are made. Individuals should not rely on this information to make a financial investment decision as it does not take into account their personal circumstance. Before making any decisions, we recommend you consult a licensed adviser to consider your particular financial situations and needs.
Depot Superannuation Pty Ltd is a corporate authorised representative [No. 1240831] of Hunter Green Pty Ltd AFSL 225962.