9 May 2017

Key points:

  • The use of limited recourse borrowing arrangements (LRBAs) will be included in a member’s total superannuation balance and transfer balance cap from 1 July 2017.
  • Opportunities for members to use related party transactions on non-commercial terms to increase superannuation savings will be reduced from 1 July 2018.
  • The current tax relief for merging superannuation funds will be extended until 1 July 2020.
  • A limited amount of an individual’s superannuation contributions made from 1 July 2017 may be withdrawn from 1 July 2018 onwards for a first home deposit.

 

LRBAs included in super balance and transfer balance cap

The use of limited recourse borrowing arrangements (LRBAs) will be included in a member’s total superannuation balance and transfer balance cap from 1 July 2017. LRBAs can be used to circumvent contribution caps and effectively transfer growth in assets from the accumulation phase to the retirement phase that is not captured by the transfer balance cap. The outstanding balance of an LRBA will now be included in a member’s annual total superannuation balance and the repayment of the principal and interest of an LRBA from a member’s accumulation account will be a credit in the member’s transfer balance account.

The measure will increase tax revenue by $4.0 million over the forward estimates period.

 

Tax relief for merging super funds extended

The current tax relief for merging superannuation funds will be extended until 1 July 2020.

Since December 2008, tax relief has been available for superannuation funds to transfer capital and revenue losses to a new merged fund, and to defer taxation consequences on gains and losses from revenue and capital assets. This tax relief was due to lapse on 1 July 2017. The tax relief will be temporarily extended as the Productivity Commission completes a review into the efficiency and competitiveness of Australia’s superannuation industry.

Extending this relief should:

  • ensure that member balances are not reduced by tax when superannuation funds merge
  • remove tax as an impediment to mergers, and
  • facilitate industry consolidation, which should lead to better retirement outcomes through reduced costs.

This measure has an unquantifiable estimated cost to revenue over the forward estimates period.

 

Downsizing superannuation concession

The Government will encourage older Australians to free up housing stock by enabling downsizers over the age of 65 to make a non-concessional contribution of up to $300,000 into their superannuation fund from the proceeds of the sale of their principal home.

Mum and dad investors will continue to be able to use negative gearing, supporting the supply of rental housing and placing downward pressure on rents.

Regulatory agencies will continue to use their flexible and calibrated controls.

Mr Morrison said the Government will legislate to extend APRA’s ability to apply controls to the non-ADI sector and explicitly allow them to differentiate the application of loan controls by location.

Even tougher rules on foreign investment in residential real estate will be introduced, removing the main residence capital gains tax exemption, and tightening compliance.

There will be an annual foreign investment levy of at least $5,000 on all future foreign investors who fail to either occupy or lease their property for at least six months each year.

 

Non-arm’s length arrangements

From 1 July 2018, the Government will reduce opportunities for members to use related party transactions on non-commercial terms to increase superannuation savings.

The non-arm’s length income provisions will be amended to ensure expenses that would normally apply in a commercial transaction are included when considering whether the transaction is on a commercial basis.

This measure will ensure the 2016-17 Superannuation Reform Package operates as intended and is estimated to increase tax revenue by $20.0 million over the forward estimates.

 

Access to super for first home deposit

Individuals will be able to make voluntary contributions into their superannuation of up to $15,000 per year and $30,000 in total, to be withdrawn subsequently for a first home deposit. The contributions can be made from 1 July 2017 and must be made within an individual’s existing contribution caps.

From 1 July 2018 onwards, the individual will be able to withdraw these contributions and their associated deemed earnings for a first home deposit. The withdrawals will be taxed at an individual’s marginal tax rate, less a 30% tax offset.

Under this new first home super saver scheme, both members of a couple can take advantage of this measure to buy their first home together. The scheme is intended to provide an incentive to enable first home buyers to build savings faster for a home deposit, by accessing the tax advantages of superannuation.

This communication contains general information only and is not intended to constitute financial product advice. Any information provided or conclusions made whether express or implied, do not take into account the investment objectives, financial situation and particular needs of an investor. It should not be relied upon as a substitute for professional advice. MGD Wealth Ltd is the holder of Australian Financial Services Licence No. 222600.