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Proposed changes to superannuation, home buyer support, social security, and more have come out on the heels of the recent federal election and Federal Budget. Here’s what you need to know
The following proposed changes relate to social security programs and downsizer contributions.
Eligibility for many social security benefits is based on your income and assets. Deeming rules impact some income tests for certain concession cards, such as the Low Income Health Card and the Commonwealth Seniors Health Card. The deeming rate is an assumed rate of return on certain investments regardless of actual income, interest, dividends, and capital gains.
The current rates came into effect on 1 May 2020, and the federal commitment is to freeze deeming rates until the year 2024. While the proposed changes won’t decrease income, you may be allowed greater financial investment levels. Your entitlement calculations will automatically be adjusted by the Department of Veterans Affairs or Centrelink.
Commonwealth Seniors Health Card Eligibility
If you are of your Age Pension age but do not qualify based on income or assets, you may be eligible for the Commonwealth Seniors Health Card (CSHC) because it has its own income test. Your income for the purposes of CSHC eligibility is based on certain retirement income streams and adjusted taxable income.
The income eligibility thresholds are expected to change from $57,761 to $90,000 for single households, $92,416 to $144,000 for couples, and $115,422 to $180,000 for illness-separated couples. If you currently hold a CSHC, you don’t need to do anything. If you become eligible, you need to apply with Centrelink and provide income and identification documents.
Downsizer contributions let people contribute some or all of house sale proceeds — up to $300,000 for an individual or $600,000 for a couple — to superannuation and do not affect other caps. They do not have a “total super balance limit” or upper age limit, unlike personal after-tax and other contributions. The current eligibility age is 65 and will be going to age 60 on 1 July 2022 — the proposal is to reduce it to age 55 on 1 July 2022 instead.
Downsizer contributions can help you raise or maintain pension or other benefit entitlement for you or your partner. They do not count towards your concessional and non-concessional caps.
Proposed to Commence 1 January 2023
The following proposed changes relate to buying and purchasing homes.
Home Sale Proceeds Exemption
If you receive social security and sell your primary residence, there is currently a 12-month exemption that applies to a portion of sale proceeds intended towards purchasing, constructing, or renovating your new primary residence. The government is proposing to extend this exemption for another period — the earlier of 12 months or purchase, construction, or renovation of the new primary residence.
The extended exemption would be available under circumstances involving delay over which you had no control and is a discretionary exemption granted by Centrelink or the Department of Veterans Affairs. There remains no income test exemption.
Regional First Home Buyer Support
The government is proposing a Regional First Home Buyer Scheme to provide support in the form of a government guarantee of up to 15% of the purchase price for 10,000 first home buyers. This would essentially allow eligible first home buyers to avoid having to pay mortgage insurance. To qualify, you must be an Australian citizen and first home buyer over the age of 18, reside outside a capital city for at least the previous 12 months, live in the purchased property, and have a taxable income up to $125,000 for a single or $200,000 for a couple.
Other support schemes — such as the First Home Super Saver Scheme and state-based programs and grants — will continue to operate in addition to the Regional First Home Buyer Support. Price thresholds will depend on where the property is located.
Commencement Yet to Be Determined
The proposed commencement date for the Help to Buy scheme has not yet been announced. Help to Buy is a shared equity scheme that provides support — for up to 40% of a new home’s purchase price and up to 30% for a current home — to up to 10,000 people every year. This will avoid the necessity for Lenders Mortgage Insurance, but you will have to have at least a 2% deposit.
After you make the initial purchase, it would then be possible to buy additional property interests (at least 5%) from the government without needing to pay the government rent for its share. Note that where you make more than the annual income caps for two consecutive years, you will have to partly or fully repay the government contribution based on affordability — though the method of determining how this requirement would work has not been announced.
Time to Talk to Your Financial Adviser
These proposals are not yet law until they are legislated into effect, so commencement dates and details may change. You should not act on these proposed changes without first consulting your financial advisers, who can provide further up-to-date information and help you understand how and if you may be able to take advantage of them.
If this article has inspired you to think about your own unique situation and, importantly, what you and your family are going through right now, please contact your advice professional.