Explanatory Memorandum - Treasury Laws Amendment (Reducing Pressure on Housing Affordability) Bill 2017

TREASURY LAWS AMENDMENT (REDUCING PRESSURE ON HOUSING

AFFORDABILITY) BILL 2017: FIRST HOME SUPER SAVER SCHEME &

CONTRIBUTING THE PROCEEDS OF DOWNSIZING TO SUPERANNUATION

FIRST HOME SUPER SAVER TAX BILL 2017

EXPOSURE DRAFT EXPLANATORY MATERIALS

Table of contents

Glossary ................................................................................................. 1

Chapter 1 First Home Super Saver Scheme ................................ 3

Chapter 2 Contributing the proceeds of downsizing to

superannuation .......................................................... 37

Glossary

The following abbreviations and acronyms are used throughout this

explanatory memorandum.

Abbreviation Definition

APRA Australian Prudential Regulation Authority

Capital gains tax CGT

Commissioner Commissioner of Taxation

FHSSS First Home Super Saver Scheme

ITAA 1997 Income Tax Assessment Act 1997

NANE Non-assessable non-exempt

RSAR 1997 Retirement Savings Accounts Regulations

1997

SISR 1994 Superannuation Industry (Supervision)

Regulations 1994

TAA 1953 Taxation Administration Act 1953

Chapter 1

First Home Super Saver Scheme

Outline of chapter

1.1 Schedule 1 amends the superannuation and tax laws to establish

the ‘First Home Super Saver Scheme’ (the FHSSS).

1.2 The FHSSS allows individuals who are saving for their first

home to take advantage of the concessional taxation arrangements that

apply to the superannuation system.

1.3 Under the scheme, first home savers who make voluntary

contributions into the superannuation system can withdraw those

contributions (up to certain limits) and an amount of associated earnings

for the purposes of purchasing their first home. Concessional tax

treatment applies to amounts that are withdrawn under the FHSSS.

1.4 All legislative references in this Chapter are to Schedule 1 to the

Taxation Administration Act 1953 (TAA 1953) unless otherwise stated.

Context of amendments

1.5 The FHSSS is one of several measures announced in the

2017-18 Budget as part of the Government’s package of reforms to reduce

pressure on housing affordability.

1.6 Australians are entering the housing market later in life than

previous generations. With house prices high, difficulty saving a deposit is

a key barrier to getting into the market. The FHSSS will help Australians

boost their savings for their first home by allowing them to build a deposit

inside superannuation.

1.7 As the FHSSS involves the early release of amounts from

superannuation, many of its features are based on the standard

determination and release rules that apply in respect of excess

concessional contributions and non-concessional contributions. The

relevant features of these rules are outlined below.

Making contributions into superannuation

1.8 There are broadly two categories of contributions that are made

into superannuation in respect of most individuals – concessional

contributions and non-concessional contributions.

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1.9 Division 291 of the Income Tax Assessment Act 1997

(ITAA 1997) provides for concessional contributions and excess

concessional contributions. Concessional contributions include personal

deductible contributions and contributions (including salary sacrificed

amounts) for which an employer claims a deduction.

1.10 Concessional contributions are included in the assessable

income of the superannuation fund that receives them and are subject to

tax at the fund rate of 15 per cent.

1.11 The concessional contributions cap establishes the upper limit

on how many concessional contributions an individual can have without

being subject to additional tax consequences. For the 2017-2018 financial

year, the concessional contributions cap is $25,000.

1.12 An individual has ‘excess concessional contributions’ for a

financial year if their concessional contributions for a financial year

exceed their concessional contributions cap. Excess concessional

contributions are included in an individual’s assessable income.

1.13 Division 292 of the ITAA 1997 relates to non-concessional

contributions. Non-concessional contributions are generally contributions

that are not included in the assessable income of the fund that receives

them. Non-concessional contributions include any excess concessional

contributions that were not released from superannuation and

contributions for which a deduction was not claimed by the entity that

made it. For the 2017-2018 financial year, the non-concessional

contributions cap is generally $100,000.

1.14 However, individuals have a non-concessional contributions cap

of nil for a financial year if their total superannuation balance at the end of

the previous year was equal to or greater than the general transfer balance

cap (currently $1.6 million). Individuals under the age of 65 can also

access the three year ‘bring forward’ rules. These rules allow an

individual to bring forward up to three years of non-concessional caps to

the current year.

Superannuation determinations

1.15 Division 97 provides for excess concessional contributions

determinations and excess non-concessional contributions determinations.

The Commissioner of Taxation (Commissioner) must issue these

determinations to an individual whose contributions for a financial year

exceed the related contributions cap.

First home super saver scheme

1.16 In making an excess concessional contributions determination,

the Commissioner must specify the amount of the excess and any ‘excess

concessional contributions charge’ that the individual is liable to pay.

1.17 For excess non-concessional contributions determinations, the

Commissioner must specify the amount of the excess, the amount of

‘associated earnings’ for the excess, and a ‘total release amount’ (being

the sum of the excess and 85 per cent of the associated earnings).

1.18 Individuals are permitted to object against both types of

determinations in the manner set out in Part IVC.

Superannuation release authorities

1.19 Division 131 was inserted by Schedule 10 to the Treasury Laws

Amendment (Fair and Sustainable Superannuation) Act 2016 and

introduced a standardised set of rules for releasing money from

superannuation.

1.20 These rules replace the separate rules that apply to excess

concessional contributions determinations, excess non-concessional

contributions determinations and notifications of assessment of amounts

of Division 293 tax. The new rules apply to determinations and

notifications issued on or after 1 July 2018.

1.21 An individual who is given one of these determinations or

notices can request that the Commissioner issue a release authority in

respect of their superannuation interests. To make a valid request, the

individual must notify the Commissioner of the total amount to be

released and identify the superannuation interest or interests from which

the amount is to be released.

1.22 Individuals who receive excess concessional contributions

determinations can request that up to 85 per cent of the excess

contributions stated in the determination be released. Discounting the

excess in this way reflects the 15 per cent tax that the fund paid on

receiving the original contribution.

1.23 For excess non-concessional contributions determinations,

individuals can request that the total release amount stated in the

determination be released, or that no amount be released. Where an

individual makes a valid request to release an amount, the Commissioner

must issue a release authority to each superannuation provider that holds a

superannuation interest identified in the request.

1.24 Superannuation providers that receive a release authority must

generally comply with the authority. However, a superannuation provider

is not required to comply with an authority that is issued in respect of a

defined benefit interest (although in these cases, compliance by the

provider is voluntary). In addition, providers are only required to comply

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with a release authority to the extent they are able to do so. That is, they

are only required to release the lesser of the amount stated in the release

authority and the ‘maximum available release amount’ (being the total

amount that can be paid out of the superannuation interest identified in the

release authority).

1.25 Superannuation providers must also notify the Commissioner of

a payment made in accordance with the release authority, or that they

have chosen not to comply (where permitted).

1.26 In addition to the amendments that introduced Division 131,

separate amendments to Schedule 1 to the Superannuation Industry

(Supervision) Regulations 1994 (SISR 1994) were made by the Treasury

Laws Amendment (Fair and Sustainable Superannuation) Regulations

2017. These amendments apply from 1 July 2018 and will replace the

existing condition of release at item 111A of Schedule 1 to the SISR 1994

with a more general reference to release authorities issued under

Division 131. These changes authorise a superannuation provider to pay

the amount stated in the release authority out of the superannuation

system.

Tax treatment of amounts released under a release authority

1.27 The general tax treatment of superannuation benefits (which

include lump sums paid out of superannuation) is provided by

Division 301 of the ITAA 1997. Ordinarily, the tax treatment of a

superannuation benefit is determined by the status of the recipient and the

‘components’ of the benefit.

1.28 Despite this general approach, superannuation benefits are

non-assessable non-exempt (NANE) if they are paid in response to a

release authority issued in relation to an excess concessional contribution

determination, excess non-concessional contribution determination, or a

release entitlement in respect of Division 293 tax (see sections 303-15 to

303-20 of the ITAA 1997). From 1 July 2018, the rules that provide this

NANE treatment will simply refer to release authorities issued under

Division 131. The proportioning rule in section 307-125 of the

ITAA 1997 does not apply to a payment that is required or permitted

under Division 131.

1.29 For releases in relation to excess concessional contributions

determinations, the benefit of the deduction that was initially claimed by

the entity that made the contribution is already unwound by including the

amount of the excess in the individual’s assessable income. As this occurs

irrespective of whether the excess contributions are released, no additional

tax applies to release amounts.

First home super saver scheme

1.30 For releases in relation to non-concessional contributions

determinations, an amount equal to the associated earnings identified in a

determination for a financial year is specifically included in an

individual’s assessable income for the corresponding income year (see

section 292-25 of the ITAA 1997). This assessment rule applies

independently of the rules that provide for the taxation of superannuation

benefits. Individuals are also entitled to a 15 per cent tax offset which

reflects the tax that a fund pays on its earnings.

Summary of new law

1.31 The key features of the FHSSS are as follows:

• Individuals who have had eligible voluntary contributions

into superannuation under the existing contribution rules and

caps can withdraw certain amounts for the purpose of

purchasing their first home.

• To initiate the release process, individuals must request a

‘first home super saver determination’ (FHSS determination)

from the Commissioner.

– In making a FHSS determination, the Commissioner must

identify a ‘maximum release amount’ based on the

individual’s past contributions and associated earnings.

• Individuals who receive a FHSS determination can request

that the Commissioner issue a release authority in respect of

their superannuation interests.

– The process for requesting and issuing release authorities

utilises the general release rules in Division 131.

• Amounts released under the FHSSS are subject to

concessional tax treatment and are paid by funds to the

Commissioner, who withholds an amount for any tax payable

before paying it to the individual.

• Individuals who do not purchase their first home within a

specified period can either recontribute an amount into

superannuation, or pay an amount of tax (the first home super

saver tax) to unwind the concessional tax treatment that

applied on release.

1.32 These features are explained in further detail below.

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Detailed explanation of new law

1.33 The FHSSS applies to voluntary contributions that individuals

make into superannuation. The eligibility criteria for contributions that

can be released under the FHSSS are explained in further detail below as

there are a number of rules that apply in calculating which contributions

for a particular financial year are eligible to be released under the scheme.

1.34 However, in general terms the FHSSS applies to the

concessional and non-concessional contributions that an individual

voluntarily makes through either personal contributions or through salary

sacrificing arrangements entered into with their employer, provided that

those contributions are made within the existing contribution caps.

1.35 Individuals can already make such contributions using existing

methods and no special exemptions from the contribution caps are

proposed as part of the FHSSS. Specific changes are therefore not

required to enable individuals to make the contributions that are eligible to

be released under the FHSSS.

1.36 Individuals who have made voluntary contributions into

superannuation can use the FHSSS to request the release of those

contributions and an amount of associated earnings from superannuation.

Releasing amounts under the FHSSS

1.37 The FHSSS uses the standard release authority rules in

Division 131 to facilitate the release of amounts from superannuation.

1.38 As noted above, Division 131 applies from 1 July 2018 and

relies on determinations being issued in respect of excess concessional

contributions, non-concessional contributions and assessments of

Division 293 tax.

1.39 These amendments introduce a new type of determination (a

first home super saver determination) that an individual can request from

the Commissioner. A first home super saver determination

(FHSS determination) specifies the maximum amount that can be released

from superannuation under the FHSSS in respect of an individual.

1.40 Individuals who receive a determination can use Division 131 to

request that the Commissioner issue a release authority in relation to their

superannuation interests.

[Schedule 1, item 3, paragraph 131-5(1)(d)]

1.41 As per the standard rules in Division 131, the Commissioner

must issue a release authority where a valid request is made by an

First home super saver scheme

individual (the requirements for making a valid request are set out in

section 131-5).

1.42 In making a valid request, individuals can request that any

amount up to the maximum release amount identified in a FHSS

determination be released from one or more of their superannuation

interests.

[Schedule 1, items 4 and 5, paragraph 131-10(1)(a) and item 4 in the table in

subsection 131-10(1)]

1.43 Specifying any amount up to the maximum release amount

allows individuals to leave amounts in superannuation if they choose to do

so. This approach is consistent with that taken in respect of excess

concessional contributions determinations and assessments of

Division 293 tax.

1.44 As the release process for the FHSSS utilises the rules in

Division 131, the standard requirements for superannuation providers

about complying with release authorities and notifying the Commissioner

apply.

1.45 In accordance with these rules, superannuation providers must

pay released amounts to the Commissioner, who will then pay an amount

to the individual that made the request. Although the Commissioner must

withhold an amount from the payment to an individual, superannuation

providers do not need to withhold an amount in respect of a payment of a

an amount that is released to the Commissioner.

1.46 Once an individual specifies the amount to be released, it is not

possible for them to request the release of any additional amounts.

However, if a superannuation provider does not release the requested

amount, a further request can be made to a different superannuation fund

for an unreleased amount. This could occur where a release authority was

issued in respect of a defined benefit interest, or the amount specified in

the release authority was more than the individual has in the fund.

First home super saver determinations

1.47 These amendments insert the rules about FHSS determinations

into a new Division 138-A of Schedule 1 to the TAA 1953.

1.48 A FHSS determination is a written determination that states the

maximum amount that an individual can request to have released under

the FHSSS (the ‘FHSS maximum release amount’), as well as the various

components that are calculated in working out that amount.

[Schedule 1,

item 1, subsection 138-5(1)]

1.49 These components of a FHSS determination are concessional

contributions, non-concessional contributions and notional earnings that

are associated with each contribution.

[Schedule 1, item 1,

paragraph 138-5(1)(b)]

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1.50 In particular, the amount of the concessional contributions and

associated earnings that are covered by a FHSS determination are relevant

in determining the tax treatment that applies to the individual after

amounts are released (this is treatment explained in further detail below).

Because the character of particular contributions are relevant to a FHSS,

an individual should have completed any notice of intent to deduct

processes in respect of contributions that they intend to claim a deduction

for prior to seeking a FHSS determination.

1.51 If an individual is dissatisfied with a FHSS determination made

in relation to them, they can object against the determination in the

manner set out in Part IVC.

[Schedule 1, item 1, section 138-10]

1.52 These review rights are consistent with the rights that are

available for excess concessional contributions determinations, excess

non-concessional contributions determinations, and excess transfer

balance determinations (see for example, section 97-10, section 97-35 and

section 136-15).

1.53 An example of where an individual is dissatisfied with a FHSS

determination is where they disagree with the FHSS maximum release

amount identified by the Commissioner. In such cases, the individual

would have the opportunity to object to the determination, and provide the

Commissioner with any additional information evidencing why the

determined amount was incorrect.

Requesting a FHSS determination

1.54 The FHSSS is designed to provide financial assistance to

individuals who are genuinely saving for their first home.

1.55 To achieve this outcome, the only individuals who can request a

FHSS determination are those who:

• have never held an interest in a CGT asset that is taxable

Australian real property;

• are aged 18 years or older; and

• have not previously requested that a release authority be

issued under Division 131 in relation to a

FHSS determination.

[Schedule 1, item 1, subsection 138-5(2)]

1.56 To be a valid request, the request for the determination must be

made in the approved form.

[Schedule 1, item 1, subsection 138-5(2)]

First home super saver scheme

1.57 Using the approved form process enables the Commissioner to

require that the individual provide information that is relevant to

determining whether they are eligible to request a determination, as well

as any information that is relevant to the determination. As with any

information that is required to be provided in the approved form, standard

administrative penalties (and possibly criminal charges) can apply to an

individual who makes false and misleading statements (for false and

misleading statements, see Division 284).

1.58 Provided that the above conditions are satisfied, the

Commissioner must make a FHSS determination in relation to the

individual.

[Schedule 1, item 1, subsection 138-5(3)]

Taxable Australian real property

1.59 The requirement about never having owned a CGT asset that is

taxable Australian real property primarily ensures that individuals who

have previously owned a home are unable to use the FHSSS.

1.60 The term ‘taxable Australian real property’ is defined in

section 855-20 of the ITAA 1997. The definition covers any real property

situated in Australia and includes a lease of land in Australia and certain

mining rights.

1.61 Because of this scope, the restriction on owning taxable

Australian real property is broader than simply having owned a home as it

also covers an investment property or commercial property. However, the

term is appropriate for determining eligibility to access the FHSSS

because another interest in taxable Australian real property (or proceeds

from an earlier sale of such property) can be used as security for a home

deposit, and is an indicator that the individual does not require additional

assistance for entry into the residential housing market.

18 years or older

1.62 The requirement that the individual be 18 years of age or older

ensures that the parents of children do not use the FHSSS for themselves

through their children.

1.63 Although children are permitted to open superannuation

accounts and to own property, they are unlikely to be saving for a deposit

or purchasing a home in their own right before they turn 18. The

restriction on accessing the FHSSS only applies in respect of people who

can request a determination – it does not prevent voluntarily contributions

that an individual makes before they turn 18 from being eligible to be

released after they turn 18.

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Previous requests for release authorities

1.64 The requirement that the individual had not previously

requested a release authority in respect of a FHSS determination ensures

that individuals can only access the scheme once.

1.65 While the requirement that the individual had never owned

taxable Australian real property prevents some individuals who have

accessed the scheme from using it again, it would not prevent an

individual seeking multiple determinations prior to purchasing their first

home.

1.66 Basing the requirement on the fact of a previous request for

release means that an individual can have had earlier FHSS

determinations made in respect of them. This may occur over a period of

time because an individual wishes to make further contributions after the

Commissioner advises them of their FHSS maximum release amount.

1.67 However, after a request for a release authority has been made in

relation to a determination, the individual will not be able to seek any

further FHSS determinations. It is expected that once an individual

requests a release authority (which is an irrevocable request), that they

will have made all of the voluntary contributions they wish to have under

the FHSSS and resolved any issues about their determined release amount

through the standard review processes available for determinations.

Determining the FHSS maximum release amount

1.68 As noted above, the maximum amount that an individual can

request to be released under the FHSSS must be identified by the

Commissioner in making a FHSS determination.

1.69 This release amount is referred to as the ‘FHSS maximum

release amount’ and comprises the amount representing the voluntary

contributions that are eligible to be released (the ‘FHSS releasable

contributions amount’) and the associated earnings related to those

contributions.

[Schedule 1, item 1, section 138-20]

1.70 The rules for identifying FHSS releasable contributions amounts

and associated earnings are explained below.

1.71 Because the FHSS maximum release amount is identified in the

determination that is made by the Commissioner, the Commissioner has a

central role in identifying and calculating the relevant amounts.

1.72 It is envisaged that in the first instance, contribution data that is

reported to the Commissioner by superannuation providers and through

employer payment summaries will form the basis for identifying the

First home super saver scheme

voluntary contributions that are eligible to be released under the FHSSS.

Although any such information will provide evidence of voluntary

contributions made in respect of the individual, the information that the

Commissioner holds at a particular time can always be supplemented by

any other information that the individual provides in respect of their

contributions. The Commissioner may also request additional information

when contribution data has not yet been received.

1.73 It is important to distinguish between the contributions and

earnings that are relevant in determining the FHSS maximum release

amount, and the superannuation interests from which amounts are actually

released under the FHSSS.

1.74 In this respect, the contributions and earnings are only relevant

insofar as they determine the amount that can be released from an

individual’s superannuation interests. There is no requirement that the

contributions and earnings that are identified in a FHSS determination be

traced and released from the same superannuation interests that the

contributions were made to. This approach also reflects the fact that

released amounts are initially treated as NANE income, with the relevant

tax consequences dealt with through separate provisions (this process is

explained in further detail below). This approach is consistent with that

taken in releases for excess concessional contributions and excess non-

concessional contributions determinations.

FHSS releasable contributions amount

1.75 An individual’s FHSS releasable contributions amount

comprises their FHSS eligible non-concessional contributions and

85 per cent of their FHSS eligible concessional contributions for

2017-2018 financial year, and any later financial years.

[Schedule 1, item 1,

subsection 138-25(1)]

1.76 The 2017-2018 financial year is the first financial year that

commenced after the Government announcement of the FHSSS in the

2017-18 Budget. Although amounts can only be released from

superannuation from 1 July 2018, permitting contributions to be eligible

under the FHSSS from the previous financial year allows individuals to

make voluntary contributions for the purposes of the scheme from an

earlier time.

1.77 FHSS eligible concessional contributions are discounted by

15 per cent to account for the tax that is paid by a superannuation provider

as a result of receiving the contribution. The discounting applies to the

amount of eligible contributions that are identified – for example, if an

individual had a concessional contribution of $5,000, the amount of that

contribution that would be included in their FHSS releasable contributions

amount would be $4,250.

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1.78 There is no need to discount FHSS eligible non-concessional

contributions in this way as they are not included in the assessable income

of the superannuation provider that receives them.

1.79 To be an ‘eligible’ contribution for an individual, the

contribution must have been made:

• as ‘voluntary’ employer contributions (such as a salary

sacrificed contribution) in respect of the individual or

member contributions made by the individual;

• as a concessional or non-concessional contribution; and

• within the concessional contributions and non-concessional

contributions caps.

[Schedule 1, item 1, paragraphs 138-30(2)(a) and (b) and subsections 138-30(3) and (4)]

1.80 In addition to these requirements:

• a $15,000 limit applies to the contributions that can be

eligible from any one financial year and a $30,000 limit

applies to the total contributions that can be eligible across all

years;

– additional rules are included to specify when certain

contributions are eligible to be released where these limits

are exceeded and to determine when certain contributions

are made;

• excess concessional contributions are disregarded in working

out an individual’s non-concessional contributions to avoid

double-counting; and

• contributions in respect of defined benefit interests or to

constitutionally protected funds cannot be eligible for release.

[Schedule 1, item 1, subsection 138-30(1) and paragraphs 138-30(2)(c) and (d)]

1.81 These conditions are explained below.

Limit on the maximum amount of eligible contributions

1.82 The maximum amount of contributions that can be counted

towards release under the FHSSS are $15,000 per financial year and

$30,000 in total. Contributions that exceed those limits are not eligible to

be released.

[Schedule 1, item 1, subsection 138-30(1)]

Contributions must be voluntary

1.83 The requirement that a contribution be made as ‘voluntary’

employer contributions or personal contributions ensures that any

First home super saver scheme

mandatory employer contributions (such as superannuation guarantee

amounts) and Government contributed amounts are not eligible to count

towards an individual’s FHSSS releasable contributions amount.

1.84 In this respect, any contributions that an individual’s employer

makes in relation to them that are not mandated employer contributions

can be eligible to be released.

[Schedule 1, item 1, subparagraphs 138-30(2)(b)(i)]

1.85 The definition of ‘mandated employer contributions’ is

contained in regulation 5.01 of SISR 1994 and relates to contributions in

respect of an employee that reduce an employer’s potential liability for

superannuation guarantee shortfall charge or that are required under an

industrial agreement (such as an Enterprise Agreement) or award. Where

an individual enters into a salary sacrifice arrangement with their

employer, the contributions that the employer makes from the salary or

wages that the individual has foregone are not mandated employer

contributions.

1.86 In addition to employer contributions that are not mandated

employer contributions, any member contributions that an individual

makes for themselves can be eligible contributions for the purposes of the

FHSSS.

[Schedule 1, item 1, subparagraphs 138-30(2)(b)(ii)]

1.87 A member contribution is defined in regulation 5.01 of the

SISR 1994 as a contribution made in respect of a member by that member.

As individuals are never compelled to make contributions in respect of

themselves, any such contributions can be treated as having been

voluntarily made for the purposes of the FHSSS.

1.88 Focussing on member contributions made by a member means

that contributions made by other entities in respect of a member will not

be eligible to count towards release amounts. This scope is specifically

intended to prevent Government contributed amounts from being eligible

to be released under the FHSSS. While it also means that contributions

made by an individual’s spouse or parents on their behalf will not be

eligible, any such amounts can be provided to the individual and

contributed as a member contribution.

Identifying concessional and non-concessional contributions

1.89 The requirement that the contribution be a concessional or

non-concessional contribution prevents any contributions that were not

counted towards an individual’s contribution caps from being eligible for

release.

[Schedule 1, item 1, subsection 138-30(2)]

1.90 Contributions that do not count towards an individual’s cap

include structured settlement contributions and small business CGT

contributions (although individuals who contributed using the small

business CGT exemption may be already precluded from using the

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FHSSS if they personally owned the asset that was sold and that asset was

real property).

1.91 The distinction also assists in identifying the correct amount of a

contribution that is able to count towards an individual’s FHSS releasable

contributions amount, given the requirement to discount eligible

concessional contributions. The process of discounting contributions will

be undertaken by the Commissioner in making a determination. In

practice, it is expected that the majority of voluntary contributions that are

made by individuals under the FHSSS will be concessional contributions.

1.92 In identifying whether a particular contribution is a concessional

contribution or a non-concessional contribution, whether or not the

contribution was an employer contribution or a member contribution is

relevant.

1.93 Employer contributions are generally concessional contributions

as they are included in the assessable income of a superannuation fund.

For member contributions, whether or not an individual lodges a valid

notice of intent to claim a deduction for a contribution determines whether

it is a concessional contribution or a non-concessional contribution.

1.94 For any contributions that have recently been made (for

example, within the financial year in which the request for release occurs),

it is expected that individuals will need to advise the Commissioner of any

notices they have lodged and any acknowledgements of such notices they

have received. Individuals will also be required to confirm that they will

not claim further deductions in respect of their contributions, including

any contributions that were assessed as being a non-concessional

contribution in a determination. Information of this kind can be provided

through the approved form processes that apply in requesting

determinations and release authorities.

1.95 Requiring a statement of this kind reflects that individuals can

make after-tax contributions at one time, but lodge a notice of intention to

deduct for the contribution at a later time. Because the notice requirement

is not applied strictly at the time the contribution is made, it would be

possible for the contribution to be treated as a non-concessional

contribution for the purposes of calculating an individual’s FHSS

maximum release amount, but then for the individual to later claim a

deduction for it. This outcome is inappropriate because the contribution

should be taxed on acceptance at 15 per cent and discounted for release

under the FHSSS. If an individual were to claim a deduction in these

circumstances, they may be subject to penalties for making false and

misleading statement under Division 284.

First home super saver scheme

Contribution must be made under the contribution caps

1.96 Requiring the contributions to have been made within the

relevant contribution caps reflects that the FHSSS does not allow

individuals to contribute more into superannuation than they would

otherwise be able to. That is, there is not a special, additional cap for

contributions that are made in respect of the FHSSS.

1.97 Where an individual has exceeded one of the contribution caps

in a financial year, the amount of the excess is not eligible to count

towards their FHSS releasable contributions amount.

1.98 However, as individuals may have a combination of

contributions that are eligible to be released and that are not eligible to be

released, any excess amounts are first treated as coming first from

contributions that would not be eligible for release (for example,

mandatory employer contributions).

1.99 This is achieved by first identifying the relevant amount of the

excess (that is, either the individual’s excess concessional contributions or

the amount by which their non-concessional contributions exceeded their

non-concessional contributions cap). The excess is then compared to the

related contributions that are not eligible to be released (such as

concessional contributions that are mandated employer contributions). If

the ineligible contributions are less than the excess, the individual’s other

contributions are not eligible to be released to the extent of the

difference.

[Schedule 1, item 1, subsections 138-30(3) and (4)]

1.100 This approach avoids applying the tax consequences of having

amounts released under the FHSSS in respect of contributions that were

already subject to tax consequences for having exceeded one of the

contribution caps. The issue arises as contribution caps are applied in an

aggregate manner for a financial year, specific contributions are not

identified as having exceeded the cap. This is because contributions for a

year are simply compared against the relevant cap, rather than the ‘last’

contributions being treated specifically as excess.

1.101 The approach also lets individuals contribute within the FHSSS

limits during the year when their total concessional contributions for the

year are not known.

Example 1.1 - excess concessional contributions

Alex has a concessional contributions cap of $25,000 for a financial

year, mandated employer contributions of $15,000 (ineligible

contributions), and member contributions of $15,000 for which a

deduction was claimed (eligible FHSS concessional contributions).

Although Alex has excess concessional contributions of $5,000, her

eligible FHSS concessional contribution are not reduced because the

amount of her excess is less than her ineligible contributions.

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However, if Alex’s mandated employer contributions were instead

$3,000 and her member contributions were $27,000, then $2,000 of her

member contributions would not be eligible to be released.

The $2,000 represents the amount by which Alex’s excess

concessional contributions were greater than her ineligible

contributions.

Note - of the remaining $25,000, only $15,000 are eligible to be

released because of the annual $15,000 limit.

Non-concessional contributions do not include excess concessional

contributions

1.102 The above example also highlights that in some cases there will

be an overlap between concessional contributions and non-concessional

contributions.

1.103 Generally, if an individual had excess concessional contributions

and did not elect to release the amount of the excess, the contribution is

also treated as a non-concessional contribution because of paragraph

292-90(1)(b) of the ITAA 1997.

1.104 To avoid double counting such contributions for the purposes of

identifying eligible contributions to be released under the FHSSS, excess

concessional contributions are disregarded in working out an individual’s

FHSS eligible non-concessional contributions.

[Schedule 1, item 1,

subsection 138-30(5)]

1.105 This approach enables the contribution to continue to be treated

as a concessional contribution for the purposes of identifying release

amounts.

Order in which contributions are counted

1.106 As the above limits will cause some contributions to be

ineligible, the FHSSS includes ordering rules to determine which

contributions remain eligible. As associated earnings are also applied to

eligible contributions, these ordering rules have implications for the way

in which earnings are calculated.

1.107 These ordering rules are designed to broadly maximise the

amount available to an individual to be released, without requiring them to

make specific elections about which contributions should be eligible, or

about how particular contributions must be characterised.

1.108 In working out which contributions are to be counted towards an

individual’s FHSS releasable contributions amount, contributions are

counted in the order in which they were made (that is, from earliest to

latest).

[Schedule 1, item 1, paragraph 138-25(2)(a)]

First home super saver scheme

1.109 This ordering rule means that contributions in an earlier

financial year are counted before contributions in a later financial year,

and that contributions that are made within a financial year are counted in

the order that they are made.

1.110 For example, if an individual makes $10,000 of member

contributions a year over five years, the combination of the $30,000 total

cap and the ordering rule will mean that the contributions from the first

three years will count towards their FHSS releasable contributions and the

contributions from the last two years will not.

1.111 Prioritising earlier contributions will generally maximise the

amount of associated earnings that are calculated in respect of an

individual’s contributions.

1.112 However, in the case of member contributions made by an

individual within a financial year, FHSS eligible non-concessional

contributions are treated as having been made before any FHSS eligible

concessional contributions.

[Schedule 1, item 1, paragraph 138-25(2)(b)]

1.113 This additional ordering means that if an individual has a

combination of concessional contributions and non-concessional

contributions within a financial year, the non-concessional contributions

are always counted first (as they are treated as having been made first).

Example 1.2 – non-concessional contributions are counted first

Megan makes monthly member contributions of $3,000 within a

financial year (a total of $36,000 of contributions for the year). These

are the only contributions that are made in respect of Megan for the

year.

At the end of the financial year, Megan claims a $25,000 deduction for

some of the contributions that she made during the financial year. As a

result, her concessional contributions for the financial year are $25,000

and her non-concessional contributions are $11,000. All of these

contributions are within her contributions caps.

In addition, the ordering rule for non-concessional contributions means

that for the purposes of determining Megan’s FHSS releasable

contributions amount, the first three contributions that Megan made are

non-concessional contributions, and $2,000 of the fourth contribution

is a non-concessional contribution. These contributions are all eligible

to be counted towards Megan’s FHSS releasable contributions amount

for the year as FHSS eligible non-concessional contributions because

they are less than $15,000 in total.

Under the $15,000 annual cap, $4,000 of Megan’s concessional

contributions can still be counted.

Of Megan’s $25,000 of concessional contributions, the remaining

$1,000 from her fourth contribution and the entire amount of her fifth

contribution are therefore FHSS eligible concessional contributions. In

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adding these contributions to Megan’s FHSS releasable contributions

amount, the concessional contributions are both reduced by

15 per cent.

Megan is entitled to release $14,400 (plus associated earnings), which

is comprised of $11,000 of non-concessional contributions and $3,400

of concessional contributions (being 85 per cent of $4,000)

1.114 This approach maximises an individual’s FHSS maximum

release amount because their non-concessional contributions are not

discounted. It also addresses the fact there can be issues with identifying

whether a particular contribution made by an individual in a financial year

is a concessional contribution or a non-concessional contribution.

1.115 This issue arises because concessional contributions and

non-concessional contributions are generally determined in aggregate

terms for a financial year, and the fact that deductions for contributions

(which determine concessional contributions for the year) are claimed for

the year.

1.116 For example, if an individual makes monthly member

contributions throughout a financial year, but claims deductions for only

part of those contributions, it is not clear which of the contributions are

concessional contributions and which are non-concessional.

Defined benefit interests and constitutionally protected funds

1.117 Contributions that are made in respect of defined benefit interest

are not eligible to be released.

[Schedule 1, item 1, paragraph 138-30(2)(c)]

1.118 Releases from defined benefit interests are voluntary at the

discretion of the provider in order to protect the way those interests are

funded. Excluding voluntary contributions in respect of defined benefit

interests is intended to ensure that individuals do not inadvertently make

contributions under the FHSSS that are unlikely to be released.

1.119 The term ‘defined benefit interest’ is defined by section

291-175 of the ITAA 1997, and relates to an interest in respect of which

an individual’s entitlement to superannuation benefits is determined by

reference to their salary over a period of time or some specified amount.

The definition is interest specific, meaning that an individual could have a

superannuation interest with a provider that is a defined benefit interest,

and a separate interest that is not. In such cases, the limitation for eligible

contributions only applies to those contributions that are made in respect

of the defined benefit interest.

1.120 Any contributions that are made in respect of a constitutionally

protected fund are excluded from being eligible.

[Schedule 1, item 1,

paragraph 138-30(2)(d)]

First home super saver scheme

1.121 This exclusion is appropriate because of the general differences

between the treatment of constitutionally protected funds and other

superannuation providers. Contributions to a constitutionally protected

fund and the associated earnings are not taxed, meaning that the general

parameters about discounting concessional contributions and including

certain released amounts in assessable income are not appropriate for

releases from constitutionally protected funds.

1.122 Constitutionally protected funds are funds that are listed by

regulations (see subsection 995-1(1)).

Calculating associated earnings

1.123 Once the contributions that are counted towards an individual’s

FHSS releasable contributions amount have been identified, earnings

associated with those contributions are calculated for each of the

contributions on a daily basis. The calculation of earnings will be done by

the Commissioner as part of the determination process.

[Schedule 1, item 1,

subsection 138-35)]

1.124 The earnings are calculated using a notional earnings rate. This

approach is specifically designed to avoid identifying actual earnings in

respect of particular contributions, and reflects that there are practical

difficulties with tracking and reporting actual contributions that are

eligible for release after they have been contributed into superannuation.

1.125 If separate contributions are made over a period of time, separate

earnings calculations will be required for each contribution to reflect the

different earnings periods. Furthermore, because earnings are calculated in

respect of the contributions counted towards an individual’s FHSS

releasable contributions amount, any concessional contributions have

already been discounted to account for the tax paid by the superannuation

provider that received the contribution before earnings are applied. The

time at which a contribution is made and the character of the contribution

are therefore both relevant to the earnings calculation.

1.126 Because the ordering rules described above apply in determining

the contributions that are counted towards an individual’s FHSS

releasable contributions amount, they are also relevant in working out

when a contribution is made and the character of that contribution in

calculating earnings.

[Schedule 1, item 1, subsection 138-25(2)]

1.127 Associated earnings are calculated for every day in the period

leading up to the time that the Commissioner makes a FHSS

determination. Ending the period on the day that the Commissioner makes

the determination is necessary to crystallise the FHSS maximum release

amount.

[Schedule 1, item 1, subsections 138-25(2) and (3)]

1.128 For contributions made in the 2017-2018 financial year, earnings

are calculated form the first day of the year. However, for contributions

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made in later financial years, contributions are calculated from the first

day of the month in which the contribution is made (or is taken to be made

because of the ordering rule).

[Schedule 1, item 1, subsection 138-35(3)]

1.129 These different earnings periods reflect a change to the

frequency of reporting that the Commissioner is expected to make from

the 2018-2019 financial year. This change will make it possible to identify

the month in which particular contributions are made. However, for the

2017-2018 financial year, earnings are calculated on an annual basis,

reflecting the annual reporting of contributions for that year.

1.130 To calculate notional earnings for a contribution on a particular

day, the shortfall interest charge rate is applied to the sum of the amount

of the contribution and any earnings amounts calculated for earlier

days.

[Schedule 1, item 1, subsection 138-35(2)]

1.131 This approach ensures that earnings are calculated on a

compounding basis. The shortfall interest rate is identified in

subsection 280-105(2) and is essentially the 90 day Bank Accepted Bill

rate with an uplift factor of 3 per cent. For the final quarter of the

2016-2017 financial year, the annual rate was 4.78 per cent, and the daily

rate was 0.01309589 per cent.

Other matters

1.132 The Commissioner is permitted to amend or revoke a

FHSS determination at any time before a release authority is issued in

relation to it.

[Schedule 1, item 1, subsection 138-5(4)]

1.133 These administrative rules are consistent with those in the

provisions for other determinations and enable the Commissioner to take

the administrative actions necessary where a determination that was

issued needs to be modified or withdrawn. An example of where this

might occur is where the Commissioner becomes aware of information

that an individual has had more eligible voluntary contributions than were

specified in the original determination. In such cases it would be open to

the Commissioner to amend the determination without the individual

seeking a review.

1.134 Notice of a FHSS determination given by the Commissioner is

also prima facie evidence of the matters stated in the notice.

[Schedule 1,

item 1, subsection 138-5(5)]

1.135 This ensures that the Commissioner does not need to provide a

full copy of the determination whenever it is necessary for an entity to be

aware that the determination was made.

First home super saver scheme

Treatment of amounts released under the FHSSS

1.136 Schedule 1 to the Bill also provides for the specific tax treatment

that applies to an individual when amounts are released from their

superannuation interests in respect to a release authority issued in relation

to a FHSS determination.

[Schedule 1, item 12, section 313-10 of the ITAA 1997]

1.137 In general terms, any release amounts that were calculated by

reference to an individual’s FHSS eligible non-concessional contributions

are treated as NANE. Any amounts related to the individual’s

FHSS eligible concessional contributions and the total associated earnings

calculated in respect of any contributions are taxed at the individual’s

marginal rates, but with a tax offset of 30 per cent.

1.138 Because amounts can only be released under the FHSSS in

response to a release authority issued by the Commissioner under

Division 131, the amount of any superannuation lump sum paid by a

superannuation provider to the Commissioner in complying with the

release authority is already NANE because of section 303-15 of the

ITAA 1997 (which applies to Division 131 from 1 July 2018). Because of

this, additional rules to ensure that release amounts based on FHSS

eligible non-concessional contributions are NANE are not required.

1.139 However, as section 303-15 of the ITAA 1997 applies to the

entire amount of the lump sum paid in response to a release authority

issued under Division 131, a specific rule is required to tax the amount

that an individual receives based on their concessional contributions and

their total associated earnings.

1.140 To achieve this, an amount equal to the concessional

contributions and associated earnings that are identified in the

FHSS determination is included in an individual’s assessable income in

the income year that corresponds with the financial year in which the

request to release was made.

[Schedule 1, item 12, subsection 313-15(1) of the

ITAA 1997]

1.141 This amount is included in assessable income is referred to as an

individual’s ‘assessable FHSS released amount’.

[Schedule 1, item 21,

subsection 995-1(1) of the ITAA 1997]

1.142 Assessable FHSS released amounts are calculated independent

of the general tax treatment that applies to superannuation benefit. As

noted above, section 131-75 means that the proportioning rule does not

apply to amounts paid in response to release authorities issued under

Division 131.

1.143 Including the amount in an individual’s assessable income for

the income year in which the request for the release occurred ensures that

the inclusion of an amount in assessable income is based on a single and

clear event that is initiated by the individual.

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1.144 Using the amount specified in a FHSS determination works

appropriately where the total amounts that are released from

superannuation are equal to the FHSS maximum release amount specified

in the determination. However, it is also possible for an individual to elect

to have a lesser amount released or for the total amounts that are

ultimately available to be released to be less than the amount they request.

1.145 To address this issue, the amount that is included in an

individual’s assessable income is reduced by any difference between the

total amount that was actually released, and the FHSS maximum release

amount specified in the relevant determination.

[Schedule 1, item 12,

subsection 313-15(2)]

1.146 This approach means that where an individual’s FHSS

maximum release amount included amounts related to non-concessional

contributions, the difference between the FHSS maximum release amount

and the actual release amount is first taken from the amounts that are

included in assessable income.

Example 1.3 - actual release less than FHSS maximum release

amount

Eric receives an FHSS determination from the Commissioner during

the 2020-2021 financial year.

The FHSS maximum release amount identified in the determination is

$35,000 comprised of $20,000 of non-concessional contributions,

$8,500 of concessional contributions, and $6,500 of associated

earnings.

Assuming Eric requested that the entire $35,000 be released and the

request occurred in the 2020-2021 financial year, Eric’s assessable

FHSS released amount would be $15,000 for the 2020-2021 financial

year.

However, if only $30,000 was released, then Eric’s assessable

FHSS released amount would be reduced to $10,000 - being the

$15,000 less the $5,000 difference between Eric’s FHSS maximum

release amount and the total amount that was actually released.

Tax offset for amounts included in assessable income

1.147 The tax offset that an individual receives is equal to 30 per cent

of an individual’s assessable FHSS released amount.

[Schedule 1, item 12,

section 313-20 of the ITAA 1997]

1.148 In conjunction with including the amounts in an individual’s

assessable income, the 30 per cent tax offset ensures that an individual is

taxed on assessable amounts released under the FHSSS at their marginal

tax rate less 30 per cent.

First home super saver scheme

1.149 This treatment means that most individuals will receive an

advantage from having utilised the FHSSS relative to the position they

would have been in had they not contributed the amounts into

superannuation.

1.150 The tax offset is neither refundable nor able to be carried

forward.

Withholding on FHSSS amounts

1.151 The Commissioner of taxation is required to withhold an amount

from FHSS released amounts that are paid in respect of an

individual.

[Schedule 1, item 15, section 12-460]

1.152 Withholding amounts from payments to an individual is

designed to assist them in meeting any increased tax burden that they face

as a result of having a potentially larger amount included in their

assessable income for an income year as the result of the amount being

released under the FHSSS.

1.153 Because the tax treatment of assessable FHSS release amounts is

ultimately determined by an individual’s marginal tax rates, the amount

that is to be withheld is based on an estimate of the amount of tax that will

be payable in relation to an individual’s assessable FHSS released

amount. This amount is provided for by regulations made in respect of

FHSS released amounts.

[Schedule 1, item 15, subsection 15-10(2)]

1.154 The obligation to withhold is restricted to the Commissioner

because it is the Commissioner that pays released amounts to individuals

after they have been released by superannuation providers. As the

estimate of tax is based on information about the individual’s expected

marginal tax rate that is more readily available to the Commissioner, it is

appropriate that the Commissioner be the one to make the estimate of the

amount that should be withheld. In making such estimates, it is expected

that the Commissioner would have regard to any recent notices of

assessment that had given to the individual, pay-as-you-go withholding

amounts that the Commissioner had received from the individual’s

employer, and any additional information provided by the individual

about their expected income for the year (for example, which shows that

they will have a higher than average income for the year).

1.155 Having the Commissioner make this estimate facilitates accurate

withholding estimates to maximise the amounts available for a first home

deposit while minimising of tax liabilities that exceed the withheld

amount. It also resolves issues with individual funds being required to

The draft regulation is included in the exposure draft regulation and released in conjunction

with the exposure draft for the principle legislation for the FHSSS.

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estimate the amount to be withheld where they have only received a

request to release a part of the total amount that is requested.

Obligations on individuals after amounts are released

1.156 The FHSSS is designed to assist individuals in saving for a

deposit for their first home.

1.157 The FHSSS applies a post-release compliance approach to

ensure that individuals have access to the amounts that they have saved

under the FHSSS before they are required to pay their deposit. This means

that instead of requiring individuals to provide evidence that they have

entered into a contract prior to amounts being released (which would

likely to give rise to substantial timing and liquidity issues), individuals

are simply required to purchase their first home within a specified period

after amounts are released.

1.158 If an individual fails to purchase their home within this period of

time, they have the option of recontributing an amount back into their

superannuation or paying an amount of tax that will broadly neutralise the

tax concessions they received from accessing the FHSSS.

1.159 To facilitate this post-compliance model, individuals are

required to notify the Commissioner that they have purchased their home.

Individuals may also notify the Commissioner that they have

recontributed the required amount into superannuation.

Purchase or construction of a home

1.160 Individuals can notify the Commissioner that they have satisfied

the requirements of the scheme if the following conditions are met:

• The individual enters into a contract to purchase or construct

a CGT asset that is a residential premises within 12 months

of the time that their first amount is released under the

FHSSS;

• The price for the purchase or construction of the premises is

at least equal to the sum of the amounts that were released;

• The individual has occupied the premises, or intends to

occupy it as soon as practicable; and

• The individual intends to occupy the premises for at least 6

of the first 12 months that it is practicable to occupy the

premises.

[Schedule 1, item 12, subsection 313-25(1) of the ITAA 1997]

First home super saver scheme

1.161 These requirements ensure that the property that the individual

has entered into a contract to purchase or construct will genuinely be the

individual’s home.

1.162 The requirement that the price for the purchase or construction

must be at least equal to the amount released ensures that the amounts

released under the FHSSS are fully used to acquire the home. Given the

caps that apply on contributions counting towards eligible release

amounts, it is extremely unlikely that any arms-length transactions will be

less than the amounts that an individual requests to have released under

the FHSSS.

1.163 Starting the 12 month period from the time that the first amount

is released recognises that there may be some delays between the time that

an individual requests a release authority and the time at which the funds

are actually available to the individual.

1.164 The time at which the relevant type of contract is entered into is

an appropriate event for satisfying the requirement, as it is from this time

that legally binding obligations about the purchase or construction are

created. It also resolves the timing issues that would be associated with

‘off the plan’ property purchases which may take years to complete.

1.165 Extending the types of contracts that can be entered into so that

they include contracts to construct a residential premises ensures that the

FHSSS can apply to a variety of arrangements that an individual can enter

into to acquire their first home. In some cases, individuals may purchase a

vacant block of land and separately enter into a contract to construct their

home on that land. In such cases, it is the contract to construct their home

that must be entered into within the specified period.

1.166 The definition of ‘residential premises’ is provided by

section 195-1 of the A New Tax System (Goods and Services Tax)

Act 1999 and relates to land or a building that is occupied as a residence,

or that is intended to be occupied. It does not include motorhomes or

houseboats. As this definition also applies to properties that an individual

rents out to others, the additional requirements about the individual

occupying the premises ensure that the individual has acquired the

property for the purposes of using it as their own home, rather than as an

investment property.

1.167 Because some properties will not have been constructed or not

be otherwise available for the individual to move into immediately

following settlement, the rules enable an individual to notify the

Commissioner that they intend to occupy the premises as soon as it is

practicable to do so. What is ‘practicable’ will depend on the facts and

circumstances of a particular case, but in all cases the individual’s

intention to occupy the premises for the requisite period of time must be

genuine.

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Extension of the period to enter into contracts

1.168 The Commissioner may extend the period for entering into a

contract by up to 12 months.

[Schedule 1, item 12, subsection 313-25(2) of the

ITAA 1997]

1.169 Providing the Commissioner with the ability to extend the period

in which an individual must enter into a contract ensures that the FHSSS

has the flexibility to accommodate individuals who are genuinely trying to

purchase their first home, but are unable to do so for one reason or

another.

1.170 However, to ensure that the obligations under the FHSSS are

clear, the period for entering into a contract cannot be longer than 24

months in total.

1.171 While individuals are free to proactively seek an extension from

the Commissioner, extensions can also be granted by the Commissioner

without any request. This approach provides the Commissioner with

administrative flexibility in ensuring compliance with the period to enter

into a contract.

1.172 Review rights in respect of decisions about extensions to the

period are also available to individuals. These review rights explained

separately below as they also apply in respect of extensions of the period

to notify the Commissioner.

Notifying the Commissioner

1.173 Individuals who have satisfied the conditions about purchasing

or constructing their first home must notify the Commissioner in the

approved form that they have satisfied those conditions within 28 days

after they enter into the contract.

[Schedule 1, item 12, subsection 313-30(2) of the

ITAA 1997]

1.174 As with the other notification requirements, the approved form

process allows the Commissioner to specify the information that must be

provided in the notice. Although the notification requirement requires the

individual to notify the Commissioner of particular matters, these

requirements do not limit the information that the Commissioner may

request.

[Schedule 1, item 12, section 313-30 of the ITAA 1997]

1.175 The period for making the notification can also be extended at

the request of the individual, or where the Commissioner considers that it

is appropriate to do so.

[Schedule 1, item 12, subsection 313-30(3) of the

ITAA 1997]

First home super saver scheme

Recontributing amounts if no purchase

1.176 If an individual does not satisfy the above requirements about

entering into a contract to purchase or construct their residential premises,

they may instead notify the Commissioner that they have recontributed an

amount into superannuation.

[Schedule 1, item 12, subsections 313-35(1) and (2) of

the ITAA 1997]

1.177 This 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. 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.

[Schedule 1, item 12, paragraph 313-35(1)(b) of the ITAA 1997]

1.178 Requiring that amounts be recontributed into superannuation

ensures that an individual did not receive a benefit from the concessions

provided by the FHSSS where they did not ultimately acquire their first

home. Basing the amount that needs to be recontributed on the

individual’s assessable FHSS released amount is appropriate because it is

this amount that the determined the original tax offset.

1.179 In contrast, amounts related to non-concessional contributions

did not provide the individual with a deduction when they were

contributed, and did not increase any tax offset that the individual

received on amounts being released.

1.180 Reducing the amount that needs to be recontributed by any

amounts that were withheld by the Commissioner recognises that for

individuals who were required to pay tax on their assessable FHSS

released amount, a recontribution of the full assessable FHSS released

amount would have to be partially funded from other sources. The

individuals who will be affected in this way are those whose marginal tax

rate was more than 30 per cent (being the amount of the tax offset).

1.181 Although the withholding amount will not always match the

exact amount of tax that is payable in respect of an individual’s assessable

FHSS released amount, it will generally be closely aligned to the actual

amount of tax. Furthermore, the amount that is withheld can be readily

identified by individuals without having to perform a more complicated

calculation about what their actual tax would have been had the relevant

release amounts not been included in their assessable income.

1.182 Requiring that the recontribution be done as a non-concessional

contribution also ensures that individuals do not receive a further benefit

from claiming another deduction in contributing the necessary amount

back into superannuation. In addition, any such recontribution as a

non-concessional contribution must be done within an individual’s

non-concessional contribution cap.

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Notifying the Commissioner

1.183 Any notification to the Commissioner about a recontribution

must be made in the approved form, and done within the period that the

individual had to enter into a contract to purchase or construct their

residential premises, including any extension to the period allowed by the

Commissioner.

[Schedule 1, item 12, subsections 313-35(2) and (3) of the

ITAA 1997]

1.184 As with the other notification requirements, the approved form

process allows the Commissioner to specify the information that must be

provided in the notice. Although the notification requirement requires the

individual to notify the Commissioner of particular matters, these

requirements do not limit the information that the Commissioner may

request.

[Schedule 1, item 12, subsection 313-35(3) of the ITAA 1997]

1.185 The period for making the notification can also be extended at

the request of the individual, or where the Commissioner considers that it

is appropriate to do so.

[Schedule 1, item 12, subsection 313-35(2) of the

ITAA 1997]

FHSS recontribution must not be a concessional contribution

1.186 Where an individual notifies the Commissioner that they have

made non-concessional contributions instead of entering into a contract to

purchase or construct their first home, the individual is not able to claim a

deduction in respect of the non-concessional contributions to which the

notification related.

[Schedule 1, item 10, section 290-168 of the ITAA 1997]

1.187 Denying the deduction ensures that individuals cannot report a

contribution as a non-concessional contribution, and later claim a

deduction for it. This rule does not require the tracing of specific

contributions and deductions. Instead, it can simply apply where an

individual’s non-concessional contributions for a financial year are less

than the contributions that the Commissioner was notified of. In such

circumstances, any deductions that the individual claimed for other

contributions would be reduced to the extent of the difference.

Review rights for requests for extensions

1.188 As noted above, the Commissioner is able to extend the period

in which a contract must be entered into, and the period in which an

individual must notify the Commissioner about the contract or a

recontribution.

1.189 Standard review rights are available to individuals who are

dissatisfied with a decision that the Commissioner makes about allowing a

longer period, or with a decision that the Commissioner makes not to

First home super saver scheme

allow a longer period. In such cases, an individual is able to object against

the decision in the manner set out in Part IVC of the TAA

1953.

[Schedule 1, item 12, section 313-60 of the ITAA 1997]

First home super saver tax

1.190 Individuals who do not notify the Commissioner that they have

entered into a contract to purchase or construct their first home or that

they have recontributed the required amount into superannuation are liable

to pay ‘first home super saver tax’.

[Schedule 1, item 12, section 313-40 of the

ITAA 1997]

1.191 First home super saver tax is imposed by the First Home Super

Saver Tax [Act] 2017,

and is equal to 20 per cent of an individual’s

assessable FSSS released amounts.

[Clauses 3 and 4 of the First Home Super

Saver [Act] 2017]

1.192 As a flat rate of tax, the FHSSS tax is unrelated to the personal

income tax system or an individual’s marginal tax rate.

1.193 Because an individual’s liability to first home super saver tax

arises at the time that they fail to notify the Commissioner that they have

entered into a contract or recontributed an amount, their liability to the tax

can only crystallise after the period that they had to undertake the relevant

actions and notify the Commissioner has passed. Because of this, any

extensions to the relevant periods that the Commissioner allows will defer

a potential liability to the tax.

1.194 Applying first home super saver tax to an individual who has not

acquired their first home or recontributed an amount into superannuation

ensures that such individuals do not obtain a benefit from accessing the

FHSSS.

1.195 While the rate of the tax provides an incentive for individuals to

take one of the actions necessary to avoid liability to the tax, it is not set at

a rate that unfairly impacts individuals who are subject to the tax. This is

because such individuals will have also received a tax offset equal to

30 per cent of their assessable FHSS released amounts and benefited from

the concessions that apply in making concessional contributions, and to

earnings within the superannuation system.

Assessments of first home super saver tax

1.196 The general assessment provisions in Division 155 are used to

facilitate assessments of first home super saver tax. Division 155 contains

standardised provisions for making, amending and reviewing assessments

The draft bill for the First Home Super Saver Tax Act 2017 is included was released in

conjunction with the exposure draft for the principle legislation for the FHSSS.

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and are already used in respect of Division 293 tax and excess transfer

balance tax.

1.197 To utilise the general assessment rules, these amendments

include first home super saver tax to the list of ‘assessable amounts’ in

Division 155.

[Schedule 1, item 17, paragraph 155-5(2)(k)]

1.198 Listing an amount as an assessable amount obliges the

Commissioner to provide a notice of assessment as soon as practicable

after the assessment is made, and permits the Commissioner to provide the

notice electronically (see section 155-10). The amendment and objection

rules in Subdivisions 155-B and 155-C also rely on an amount being an

assessable amount, and apply in the standard way to assessments of first

home super saver tax.

1.199 As first home super saver tax is not able to be self-assessed, no

changes are made to the rules about the self-assessment of certain taxes

(see section 155-15). Subdivision 155-A also contains rules for part-year

assessments and delays in making assessments (see sections 155-25 and

155-30). The part-period rules are unlikely to be relevant for FHSSS tax,

as the period of assessment is less relevant than the event that leads to the

assessment being required. The delay rules relate to actions that must be

undertaken after a return has been provided.

1.200 As the FHSSS will not involve returns, these amendments also

ensure that the delay rules do not apply to first home super saver

tax.

[Schedule 1, item 19, paragraph 155-30(3)(c)]

When first home super saver tax is payable and general interest charge

1.201 An individual’s assessed first home super saver tax is due and

payable at the end of 21 days after the Commissioner gives the individual

a notice of the assessment of the tax.

[Schedule 1, item 12, section 313-45 of the

ITAA 1997]

1.202 If the Commissioner amends an individual’s assessment, any

extra assessed first home super saver tax is due and payable at the end of

21 days after the Commissioner gives the individual a notice of the

amended assessment.

[Schedule 1, item 12, section 313-50 of the ITAA 1997]

1.203 These timing rules are consistent with those that apply for other

taxes, such as Division 293 tax and excess transfer balance tax under

Division 294 of the ITAA 1997.

1.204 Individuals who fail to pay an amount of assessed first home

super saver tax by the time that it is due and payable are liable to the

general interest charge for each day in the period over which the amount

is due but unpaid.

[Schedule 1, item 12, section 313-55 of the ITAA 1997]

First home super saver scheme

1.205 The general interest charge is worked out under Part IIA of the

TAA 1953.

Consequential amendments

FHSSS amounts do not count for means testing purposes

1.206 There are a number of income tests across Australia’s laws that

are used to determine things like an individual’s eligibility for

Government payments, eligibility for certain tax offsets, liability to the

Medicare levy surcharge, and liability to repay Government debts.

1.207 Many of these income tests are based on an individual’s income,

taxable income, or assessable income. Some of these tests use those

concepts, or establish specific income definitions that add or subtract

other amounts (for example, there are several definitions of ‘adjusted

taxable income’).

1.208 In the absence of any further changes, the amount included in an

individual’s assessable income when amounts are released under the

FHSSS will be reflected in their assessable income and taxable income,

which has flow on consequences for those tests that use these concepts.

1.209 In addition, many of the tests that use these income concepts

specifically add certain concessional contributions back to an individual’s

income. Depending on whether an income test focusses on taxable income

or assessable income, ‘reportable superannuation contributions’ or

‘reportable employer superannuation contributions’ are generally added to

an individual’s income.

1.210 These amounts reflect different types of voluntary contributions

that an individual can have made into superannuation. Reportable

employer superannuation contributions are defined by section 16-182 and

relate to the voluntary salary sacrificed contributions that an employer

makes for an employee (that is, they do not include employer

contributions that discharge their superannuation guarantee obligations).

These contributions are generally added back to tests based on assessable

income because other contributions that an individual receives a deduction

for (like member contributions) do not reduce their overall amount of

assessable income (that is, they only reduce their taxable income).

1.211 Reportable superannuation contributions are defined by

subsection 995-1(1) of the ITAA 1997 as being the sum of an individual’s

reportable employer superannuation contributions and any deductions that

are claimed in respect of their contributions. Reportable superannuation

contributions therefore describe all voluntary concessional contributions

made in respect of an individual and are generally added back to income

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tests that are based on taxable income because the deduction that

individuals receive also reduce their taxable income.

1.212 Because an individual’s assessable FHSS released amounts

reflect amounts that were voluntarily contributed into superannuation in

respect of the individual, counting amounts when they are released from

superannuation will result in double counting under any income tests that

add back reportable employer superannuation contributions or reportable

employer contributions.

1.213 To prevent such double counting from occurring, these

amendments specifically disregard an individual’s assessable FHSS

released amount in determining their income under the following

provisions:

First home super saver scheme

Test Reference/s Relevant for…

A New Tax System (Family Assistance) Act 1999

Adjusted taxable

income

Paragraph 2(1)(a) of

Schedule 3

Includes:

- Family tax benefit A and B

- Child care benefit

- Seniors Health Care Card

- Low income

superannuation tax offset

- Youth Allowance

Child Support (Assessment Act) 1989

Adjusted taxable

income

Paragraphs 43(1)(a) and

60(2)(a)

Parental income for child

support purposes

Higher Education Support Act 2003

Repayment

income

Paragraph 154-5(1)(a)

Repayment threshold for

HELP debts

Income Tax Assessment Act 1936

Rebate income

Subsection 6(1)

Tax rebate for low income

aged persons and pensioners

Income Tax Assessment Act 1997

Income threshold

Subsection 35-10(2E)

Non-commercial loss rules

Income threshold

Subparagraph

61-580(1)(d)(v)

Tax offset for Medicare

Levy Surcharge

Income threshold

Subparagraph

83A-35(2)(b)(iii)

Employee share schemes

Income threshold

Paragraph 290-230(2)(c)

Spouse tax offset

Income for

surcharge purposes

Subsection 995-1(1)

Includes:

- Medicare levy surcharge

- Medicare levy surcharge on

reportable fringe benefits

- Division 293 tax

- Private Health Insurance

Act 2007 – premium

reduction income tiers

Social Security Act 1991

Repayment

income

Subsection

1061ZZFA(1)(a)

Repayment threshold for

Financial Supplement Debt

Combined parental

income

Paragraph 1067G-F10(a)

Parental income test

Adjusted taxable

income

Paragraph 1071-3(a)

Seniors Health Care Card

Student Assistance Act 1973

Repayment

income

Paragraph12ZL(1)(a)

Repayment threshold for

Financial Supplement Debt

Superannuation (Government Co-contribution for Low Income Earners)

Act 2003

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Total income

Paragraph 8(1)(a)

Government co-contribution

Veterans Entitlements Act 1986

Adjusted taxable

income

Paragraph 118ZZA-3(a)

Seniors Health Care Card

[Schedule 1, items 22 to 37]

Application and transitional provisions

1.214 The amendments commence immediately after the

commencement of Part 1 of Schedule 10 to the Treasury Laws

Amendment (Fair and Sustainable Superannuation) Act 2016.

1.215 Schedule 10 introduced Division 131 and is to commence on

1 July 2018. Commencing these amendments immediately after the

commencement of Schedule 10 reflects that Schedule 1 to this Bill

amends certain provisions of Division 131.

1.216 FHSS determinations can also be made from any time after

1 July 2018, meaning that release authorities can be issued from the time

that determinations are made.

1.217 The specific rules about which contributions are eligible to count

towards an individual’s FHSS releasable contributions amount ensures

that the Commissioner can have regard to contributions that were made in

respect of an individual on or after 1 July 2017.

[Schedule 1, item 1,

subsection 138-25(1)]

Chapter 2

Contributing the proceeds of downsizing

to superannuation

Outline of chapter

2.1 Schedule 2 to the Bill allows an individual to use the proceeds in

relation to one sale of their main residence to make contributions

(downsizer contributions) of up to $300,000 to their superannuation

provider if they are 65 years of age or over. Downsizer contributions can

be made regardless of the other contributions caps and restrictions that

might apply to making voluntary contributions.

2.2 This measure applies to proceeds from contracts for the sale of a

main residence entered into (exchanged) on or after 1 July 2018.

2.3 For the purposes of the exposure draft consultation, these

explanatory materials explain the changes to both the legislation and the

regulations needed to implement the policy.

2.4 All references in this Chapter are to the Income Tax Assessment

Act 1997 unless stated otherwise.

Context of amendments

2.5 The measure to allow the contributions of downsizing into

superannuation measure is one of several measures announced in the

2017-18 Budget as part of the Government’s package of reforms to reduce

pressure on housing affordability.

2.6 There are current contribution restrictions and caps that prevent

some older Australians from making downsizing contributions into

superannuation. Being unable to invest the proceeds of selling their home

into superannuation discourages some older people from downsizing

homes that no longer meet their needs. This means many larger family

homes sit occupied by only singles or couples.

2.7 This measure will provide greater flexibility to contribute those

proceeds into superannuation. Downsizing should enable more effective

use of the housing stock by freeing up larger homes for younger, growing

families.

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Operation of existing law

Making contributions into superannuation

2.8 There are two categories of superannuation contributions for

taxation purposes: concessional and non-concessional. Concessional

contributions generally include all employer contributions (including

salary sacrificed amounts) and all personal contributions for which a

deduction is claimed.

2.9 Non-concessional contributions are essentially contributions that

are made from after-tax income and are subject to a maximum limit (cap)

each year.

2.10 The annual non-concessional contributions cap for the

2017-2018 financial year is $100,000. However, if an individual’s total

superannuation balance at the end of the previous year equals or exceeds

the general transfer balance cap, their non-concessional contributions cap

for the year is nil (paragraph 292-85(2)(b)). For the 2017-2018, the

general transfer balance cap is $1.6 million.

2.11 The Commissioner of Taxation (Commissioner) must make a

determination if an individual’s non-concessional contributions exceed

their cap. The individual has the choice of releasing the excess amount

plus 85 per cent of associated earnings. If the individual chooses not to

release the amount, they are subject to excess non-concessional

contributions tax of 47 per cent on the amount of the excess. Where the

individual releases the money the associated earnings are included in their

assessable income and taxed at their marginal tax rate.

2.12 Some contributions are excluded from being a non-concessional

contribution, meaning that they do not count towards an individual’s non-

concessional contributions cap. Two of the main exclusions are

contributions arising from structured settlements or orders for personal

injuries (section 292-95) and contributions relating to some CGT small

business concessions (section 292-100). If a contribution is not covered by

an exclusion, the contribution is a non-concessional contribution and

counts towards the individual’s non-concessional contributions cap.

Rules about accepting contributions made into superannuation

2.13 The Superannuation Industry (Supervision) Regulations 1994

(SISR 1994) and Retirement Savings Accounts Regulations 1997

(RSAR 1997) set out certain rules about when a superannuation provider

is allowed to accept certain contributions. For these purposes a

contribution is either an employer contribution or a member contribution

Contributing the proceeds of downsizing to superannuation

(a contribution made by or on behalf of a member other than by an

employer).

2.14 Generally a member contribution will be a non-concessional

contribution unless the individual has claimed a deduction in respect of it

or it is excluded from being a non-concessional contribution

(292-80(2)(c)). Whether a superannuation provider can accept a

contribution depends on the type of contribution, the member’s age and

their working status. These acceptance rules are contained in

subregulation 7.04(1) of the SISR 1994 and subregulation 5.03(1) of the

RSAR 1997.

2.15 Superannuation providers can accept employer contributions and

member contributions in respect of a member who is 65 years or older, but

under 70 years of age. For a fund to accept a member contribution in

respect of such members, the member must satisfy a work test.

2.16 Superannuation providers can accept employer contributions in

respect of a member, and member contributions made by the member for

members who are 70 years or older but who are under 75 years of age. For

a fund to accept a member contribution made by such members, the

member must satisfy a work test. Requiring member contributions to have

been made by the member means that contributions made by an entity that

is not an employer (such as a spouse) cannot be accepted by a

superannuation provider for a person who has reached age 70.

2.17 Superannuation providers can only accept mandated employer

contributions for members aged 75 and over. This means that

contributions made by a member who is aged 75 or over cannot be

accepted by a superannuation provider.

2.18 If the superannuation provider receives a contribution that is

inconsistent with the acceptance requirements, it must return the

contribution within 30 days of becoming aware of the inconsistency. The

provider may also return an amount that reflects investment outcomes (for

example, gains or losses that provider made after the contribution was

accepted) and that is net of administrative costs (subregulation 7.04(4) of

the SISR 1994 and subregulation 5.03(4) of the RSAR 1997).

Dwelling that is your main residence

2.19 For capital gains tax (CGT) purposes, broadly, a capital gain or

loss made on a dwelling that is an individual’s main residence is

disregarded (subsection 118-110(1)). ‘Main residence’ is not defined and

takes its ordinary meaning. ‘Dwelling’ is defined and includes, broadly, a

unit or house, the land directly under it (if a house), and also a caravan,

houseboat or other mobile home (section 118-115). It also includes

adjacent land such as a garden, up to 2 hectares (section 118-120). The

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rules apply to individuals with an ownership interest, meaning a legal or

equitable interest or right or licence to occupy a dwelling

(section 118-130).

2.20 If a dwelling was only the main residence for part of an

individual’s ownership period, the capital gain or loss is only disregarded

for the period it was their main residence (section 118-185).

2.21 Individuals can continue to treat a dwelling as their main

residence if they are absent from their dwelling for periods of time (for

example, to travel, work or move into a retirement village). If the dwelling

is used for income producing periods, this absence is limited to six years.

If not, there is no time limit on the absence (section 118-145).

2.22 Section 118-195 deals with the CGT treatment of dwellings

acquired from a deceased estate. An individual who inherits a dwelling

and uses that dwelling as their main residence, or sells the dwelling within

two years, qualifies for the full main residence exemption if the deceased

acquired the dwelling:

• before 20 September 1985; or

• on or after 20 September 1985, and immediately before their

death it was their main residence and not used to produce

assessable income.

2.23 If an individual inherits a dwelling that does not become their

main residence and does not sell it within two years, a partial exemption is

available (section 118-200). There are also special rules for a surviving

joint tenant if their spouse dies (section 118-197).

2.24 Subdivision 118-B and other sections of Part 3-1 provide

modifications to the basic main residence exemption including, amongst

others, specific rules for relationship breakdown, when an individual can

elect to treat a dwelling as a main residence and partial exemptions if the

dwelling has been used to produce assessable income.

2.25 A CGT event for the disposal of an asset (including a main

residence) generally occurs when the contract for the disposal is entered

into (subsection 104-10(3)). However, the change of ownership generally

occurs upon settlement of a contract.

Contributing the proceeds of downsizing to superannuation

Summary of new law

2.26 The amendments in this Schedule allow ‘downsizer

contributions’ to be made in respect of a person who is aged 65 or over

from the proceeds of the sale of a dwelling that was their main residence.

2.27 The amendments apply to the proceeds of contracts entered into

on or after 1 July 2018. Downsizer contributions are not tax deductible

and can be made for an individual in relation to one sale of a main

residence. Further downsizer contributions cannot be made in the future in

relation the sale of another main residence.

2.28 The total amount of contributions that can be treated as

downsizer contributions in respect of an individual is the lesser of

$300,000 and the individual and their spouse’s share of the sale proceeds.

2.29 In line with the treatment for other kinds of contributions, if an

amount is contributed to superannuation that does not meet the

requirements of a downsizer contribution, the contributions will be

counted against the relevant contribution cap unless the superannuation

provider refunds the amount.

Comparison of key features of new law and current law

New law Current law

If you are aged 65 or over, you may

make downsizer contributions from

the proceeds of the sale of your main

residence.

Downsizer contributions are not

counted against your contributions

caps.

Your downsizer contributions must

relate to the sale of a dwelling that

was your main residence and which

was owned by you or your spouse

owned for at least 10 years up to the

disposal.

Your total downsizer contributions

cannot exceed $300,000.

Downsizer contributions are not

deductible and you can only make

downsizer contributions in relation to

the sale of your main residence once.

If you are aged 65 or over, any

contributions that you can make in

relation to the proceeds of the sale of

your main residence are subject to

your contributions caps.

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Detailed explanation of new law

A superannuation provider may accept a downsizer contribution

2.30 Downsizer contributions can be made in respect of any member

who is 65 or over. Changes to the contribution acceptance rules in the

SISR 1994 and RSAR 1997 are needed to effect this change. For the

exposure draft consultation, the changes to the regulations are explained

within these explanatory materials, but separate explanatory material will

be required for those regulations.

2.31 Superannuation providers can accept downsizer contributions in

respect of individuals who are aged 65 or over.

[Schedule 2, items 1, 2, 4 and 5,

table items 2 to 4 in the table in subregulation 5.03(1) of the RSAR 1997 and table items

2 to 4 in the table in subregulation 7.04(1) of the SISR 1994]

2.32 For the purposes of the regulations, the term ‘downsizer

contribution’ takes its meaning from section 292-102 of the ITAA 1997

(which is introduced by these amendments).

[Schedule 2, items 3 and 6,

subregulation 5.03(7) of the RSAR 1997 and subregulation 7.04(7) of the SISR 1994]

2.33 The changes to the contribution acceptance rules allow

downsizer contributions to be made in respect of individuals where they

would otherwise not be able to be made because the individual does not

satisfy the existing age and work tests.

2.34 In determining whether a contribution can be accepted as a

downsizer contribution, superannuation provider must be satisfied that the

contribution meets the conditions that are required for acceptance.

However, in determining whether a contribution can be accepted as a

downsizer contribution, funds are not expected to undertake verification

processes that are any more onerous than those that currently apply in

determining whether a member satisfies a particular age or work test.

Further details are provided below about the processes that apply where

the Commissioner identifies that a contribution that was accepted as a

downsizer contribution did not satisfy the relevant criteria.

2.35 Although an individual under 65 is unable to make a downsizer

contribution, they can continue to have member contributions made in

respect of them under the general acceptance rules.

2.36 It is expected that the Commissioner will require superannuation

providers to report downsizer contributions that they receive through the

general reporting obligations for contributions under subsection 390-5(1)

of Schedule 1 to the Taxation Administration Act 1953.

Contributing the proceeds of downsizing to superannuation

Downsizer contributions do not count towards the contribution caps

2.37 A downsizer contribution is excluded from being a

non-concessional contribution.

[Schedule 2, item 3,

subparagraph 292-90(2)(c)(iiia)]

2.38 The criteria for a contribution being a downsizer contribution are

explained below.

2.39 Because a downsizer contribution is not a non-concessional

contribution, it does not count towards an individual’s non-concessional

contributions cap. Given this, an individual’s ability to make a downsizer

contribution is unaffected by the total superannuation balance test, which

is relevant in determining an individual’s non-concessional contributions

cap. However, if a downsizer contribution is made, it will increase an

individual’s total superannuation balance for the purposes of that test.

2.40 Individuals cannot claim a deduction for any contributions that

they choose to treat as a downsizer contribution.

[Schedule 2, item 2,

section 290-167]

2.41 This restriction on deductions ensures that downsizer

contributions are appropriately dealt with through the non-concessional

contribution framework. However, the restriction does not apply to any

other contributions that an individual can otherwise make in respect of the

proceeds of selling their main residence.

Example 2.1 - downsizer contributions made with other contributions

Amy is 67 years old and works part-time. She receives $500,000 from

the proceeds of the sale of her home and chooses to make a downsizer

contribution of $300,000.

Amy also decides to make an additional $100,000 of contributions

from the remaining proceeds, which she is able to do because of her

age and part-time work.

Amy decides to claim a deduction of $15,000 in relation to the

$100,000 of contributions. She is not entitled to claim a deduction for

her $300,000 downsizer contribution.

Amy also has mandated employer contribution of $5,000 for the year.

For the financial year in which the contributions are made, Amy has a

downsizer contribution of $300,000, $20,000 of concessional

contributions and $85,000 of non-concessional contributions.

Features of a downsizer contribution

2.42 For a contribution to be a downsizer contribution in respect of an

individual, the following conditions must be satisfied:

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• The individual must be aged 65 years or older at the time the

contribution is made;

• The contribution must be in respect of the proceeds of the

sale of a qualifying dwelling in Australia that either the

individual or their spouse owned for at least 10 years up to

the disposal;

• The disposal of the dwelling must have qualified (or would

have qualified) for the main residence CGT exemption in

whole or part;

• The contribution must be made within 90 days of the disposal

of the dwelling, or such longer time as allowed by the

Commissioner;

• The individual must choose to treat the contribution as a

downsizer contribution, and notify their superannuation

provider in the approved form of this choice at the time the

contribution is made; and

• The individual cannot have had downsizer contributions in

relation to an earlier disposal of a main residence.

[Schedule 2, item 4, paragraphs 292-102(1)(a) to (f)]

2.43 Downsizer contributions in respect of an individual can only be

made from the sale of one dwelling, and the maximum amount of

contributions that an individual can have in respect of that sale is the

lesser of $300,000 and the proceeds of the disposal of the

dwelling.

Schedule 2, item 4, paragraph 292-102(1)(i) and subsection 292-102(2)]

2.44 To qualify as a downsizer contribution, the member contribution

must be made in respect of the individual who is otherwise eligible. There

are no specific requirements about who must actually make the

contribution for that individual, although the individual must be the one

who makes the choice to treat a contribution as a downsizer

contribution.

[Schedule 2, item 4, paragraph 292-102(1)(a)]

Proceeds from qualifying dwellings

2.45 The proceeds from the sale of an ownership interest in a

dwelling that is located in Australia (section 960-505) can be used to

make a downsizer contribution, provided that the dwelling is not a

houseboat, caravan or other mobile home.

[Schedule 2, item 4,

paragraph 292-102(1)(b) and (f)]

Contributing the proceeds of downsizing to superannuation

2.46 For the purposes of the downsizer contribution rules, the

definitions of ‘ownership interest’ and ‘dwelling’ that are contained in

sections 118-115 and 118-130 apply.

2.47 However, as this definition includes houseboats, caravans and

other mobile homes, those types of dwellings are specifically excluded.

Restricting the downsizer contribution rules in this way is appropriate

because the policy intent is to free up larger houses or units for younger,

growing families.

2.48 Because the contributions must relate to the proceeds of the

disposal of an ownership interest, the amount of the contribution cannot

be more than the proceeds that were received from the disposal, up to a

limit of $300,000 (these limits are explained separately below).

2.49 In addition, downsizer contributions can be made in respect of

an individual if they or their spouse held an ownership interest in the

dwelling, whether that ownership interest was held solely, jointly or as

tenants in common.

[Schedule 2, item 4, paragraphs 292-102(1)(c) and (i)]

The 10 year ownership test

2.50 An individual or their spouse must have owned the dwelling for

10 or more years just prior to disposing of it.

[Schedule 2, item 4,

paragraphs 292-102(1)(c) and (e)]

2.51 The period of the 10 year ownership test is calculated from the

day ownership of the dwelling commenced to the day it ceased. This

ownership period would usually be from the settlement date of the

original contract to purchase the dwelling to the settlement date of the

later contract.

2.52 As a general rule, individuals must have disposed of their

ownership interest in a dwelling in order to make a downsizer

contribution. The only exception to this is where only one spouse holds an

ownership interest in the dwelling but the other spouse does not. In these

circumstances it is sufficient that one spouse held the ownership interest,

as long as the spouse who doesn’t hold an ownership interest continues to

meet the other requirements for the contribution to be a downsizer

contribution.

2.53 In certain cases, there may have been a change in ownership

between two spouses over the 10 year period that preceded the sale of

dwelling. Provided that either of the spouses held an ownership interest in

the dwelling at all times during the period, downsizer contributions can be

made in respect of the person who held the ownership interest just before

disposal and in respect of another person who is their spouse at that time.

2.54 An example of where this may occur is where a spouse who held

the ownership dies. In such case, the surviving spouse can count the

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period of ownership of their deceased spouse (including the period the

dwelling is held by the trustee of the deceased estate) towards the 10 year

ownership test. The additional qualification about the period over which

the dwelling was held by a trustee will generally only be relevant where it

is the trustee that disposed of the ownership interest. Where ownership

transfers to the surviving spouse, subsections 128-12(1) and (2) provide

that if a CGT asset passes to beneficiary of a deceased estate, the

beneficiary is taken to have acquired the asset on the day the former

owner died.

- transfer ownership interest between spouses Example 2.2

In 2015, Andrew and Tara are both 70 years old.

They have been married for 50 years, and have lived in their family

home for the past 40 years. The title for their home is solely in

Andrew’s name.

Andrew passes away in mid-2015. He leaves the family home to Tara.

On 1 December 2016 the title for the home formally passes to Tara.

After a few years, Tara decides to sell the home so that she can move

into a retirement village. The contract for the sale of the home settles

on 1 December 2019.

Tara satisfies the 10 year ownership test for the purposes of the

downsizer rules because at all times over the period starting on

1 December 2009 and 1 December 2019, the ownership interest in the

home was held by Andrew (for the first 7 years) or Tara (for the last 3

years).

2.55 Similarly, an individual person may gain title in respect of a

dwelling following the breakdown of a relationship. In such cases, the

person can count the period of ownership of their former spouse towards

the 10 year ownership test.

Main residence

2.56 Where the proceeds that are being contributed are from the

disposal of an ownership interest that the individual held in a dwelling,

any capital gain or loss resulting from the disposal must have been exempt

or partially exempt from CGT under the main residence exemption in

Subdivision 118-B.

[Schedule 2, item 4, subparagraph 292-102(1)(d)(i)]

2.57 Requiring the main residence CGT exemption to apply ensures

downsizer contributions can only be made in circumstances where

individuals are downsizing their home as opposed to the sale of solely

investment properties.

Contributing the proceeds of downsizing to superannuation

2.58 It is recognised that over the period that an individual owns a

dwelling, they may not always reside in that dwelling for certain reasons.

For example, the residence status at a particular time may be affected by

things like travel, moving house for unavoidable reasons (like a

compulsory acquisition, or relationship breakdown), or use of a dwelling

to also earn assessable income.

2.59 These kinds of individual circumstances should not prevent an

individual from making a downsizer contribution if the individual meets

all the other criteria. The meaning of ‘main residence’ for CGT purposes

provides an exemption or partial exemption from CGT for circumstances

of this kind (Subdivision 118-B).

2.60 The requirement that an individual received (or would have

received) some part of the main residence CGT exemption for the capital

gain or loss they made from selling their dwelling is an appropriate basis

for assessing whether a dwelling was the individual’s ‘main residence’ for

the purposes of making a downsizer contribution.

2.61 A downsizer contribution can also be made from the sale of

dwelling that is not a CGT asset because it was acquired prior to

20 September 1985. For a sale of a pre-CGT asset, the individual can only

have a downsizer contribution if they would have been entitled to a whole

or partial CGT exemption under Subdivision 118-B if the dwelling had

been a CGT asset.

[Schedule 2, item 4, subparagraph 292-102(1)(d)(i)].

- sale of pre-CGT asset Example 2.3

On 1 July 2020, Chris decides to sell his home. He has lived in this

home at all times since he purchased it in 1975.

Chris does not have to pay CGT on the gains he makes from the

disposal because he acquired his home before 20 September 1985.

However, had Chris’ home not been a pre-CGT asset, all of the gains

he made on the sale of the home would have been exempt because of

the main residence CGT exemption.

As such, Chris satisfies the main residence requirement for making a

downsizer contribution in relation to the proceeds of the sale of his

home.

2.62 Similarly, if an individual’s spouse was the sole holder of the

ownership interest that was disposed of, downsizer contributions can only

be made in respect of the individual from the proceeds of the disposal if

they would have received a whole or partial CGT exemption under

Subdivision 118-B had they had owned the interest when it was disposed

of.

[Schedule 2, item 4, subparagraph 292-102(1)(d)(ii)]

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– contribution for spouse that did not hold an ownership interest Example 2.4

Elizabeth has owned the dwelling that is her main residence since

2005. In 2015, her new spouse Jimi moves in with her. Jimi lives in the

dwelling as his main residence from 2015, and he would therefore

qualify for a CGT exemption on the sale of the dwelling if he was on

the title.

Elizabeth turns 65 in 2019 and decides to sell the dwelling. Jimi is also

65 at that time.

The capital proceeds are $500,000. Elizabeth chooses to make a

downsizer contribution in respect of herself of $300,000 and also in

respect of Jimi of $200,000.

The downsizer contributions in respect of Elizabeth and Jimi are both

valid, assuming all the other criteria are also met.

2.63 In determining whether the CGT main residence exemption

applies it is the characteristics of the individual in respect of whom the

downsizer contribution has been made that are relevant. The requirements

will be satisfied where the individual satisfies all the requirements to have

qualified for a CGT main residence exemption but for the fact that it was

their spouse who held the ownership interest in the dwelling (rather than

the individual).

Cap on a downsizer contribution

2.64 The total amount of downsizer contributions that can be made in

respect of an individual is the lesser of $300,000 and the total proceeds

that the individual and their spouse receive from disposing of their

ownership interests in the dwelling.

[Schedule 2, item 4, subsection 292-102(2)]

2.65 Where the cap on contributions is based on the total proceeds

received by an individual or their spouse, the amount of the cap for a

particular contribution is reduced by any earlier contributions in respect of

those proceeds that have already been made by either spouse.

[Schedule 2,

item 4, paragraph 292-102(2)(b)]

2.66 Reductions for earlier contributions ensure that the total amount

that is contributed between both spouses does not exceed the total

proceeds that they received from the disposal of their ownership interests.

Making multiple contributions

2.67 Subject to the above caps, an individual can make as many

downsizer contributions as they wish. However, the contributions can

only ever be made from the proceeds of one sale of a dwelling.

[Schedule 2,

item 4, paragraphs 292-102(1)(h) and (i), subsection 292-102(2)]

Contributing the proceeds of downsizing to superannuation

2.68 However, the rules about downsizer contributions permit

multiple contributions to be made from the same sale of a dwelling. This

allows individuals to make contributions to different superannuation

providers if they choose to do so. However, it does not extend to

contributions from the proceeds of other properties, or of ownership

interests in the same dwelling that are disposed of at a later time (for

example, because of the sale of part of the ownership interests in a

dwelling, or where there has been a sale and re-acquisition of the same

dwelling).

2.69 While an individual can have contributions made from the

proceeds of both their own interest and their spouse’s ownership interest

in a dwelling, any such ownership interests must have been disposed

under the same contract.

[Schedule 2, item 4, paragraph 292-102(2)(b) and

subsection 292-102(3)]

Choosing to treat a contribution as a downsizer contribution

2.70 An individual must make a choice to treat a contribution as a

downsizer contribution. This choice must be made in the approved form

and given to the superannuation provider that accepts the contribution at

the time the contribution is made.

[Schedule 2, item 4, paragraph 292-102(1)(h)

and subsection 292-102(6)]

2.71 Requiring a specific choice ensures that a contribution is only a

downsizer contribution where the individual decides that it should be

treated as such. Given that individuals can only make downsizer

contributions in relation to the sale of a single dwelling, the choice

enables individuals to choose between dwellings when they have more

than one that would qualify under the downsizer rules.

2.72 The requirement to notify a superannuation provider of the

choice at or before the time of the contribution enables superannuation

providers to know that they are able to accept the contribution irrespective

of whether the individual satisfies one of the other conditions (such as age

or working status) for making member contributions into superannuation.

2.73 Having the notification made in the approved form also enables

the Commissioner to specify any information that must be provided to

determine that the contribution meets the requirements of a downsizer

contribution.

2.74 The standard administrative penalties may apply to an individual

who makes a false or misleading statement (for administrative penalties

for false and misleading statements, see Division 284 of Schedule 1 to the

Taxation Administration Act 1953).

2.75 It is expected that the Commissioner will require a

superannuation provider to report a downsizer contribution it receives

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through its normal contributions reporting process under

subsection 390-5(1) of Schedule 1 to the Taxation Administration

Act 1953.

Contribution must be made within 90 days

2.76 A contribution must be made within 90 days, or such longer

time as the Commissioner allows, of the change in ownership that occurs

as a result of the disposal of the relevant ownership interest.

[Schedule 2,

item 4, paragraph 292-102(2)(g)]

2.77 This requirement is consistent with the timing rule that also

exists for making contributions from the proceeds of a structured

settlement. The Commissioner can extend the period for making a

contribution without a request from the individual, where it is appropriate

to do so.

2.78 Individuals are also able to request a longer period for making a

downsizer contribution, and can seek a review of any decision the

Commissioner makes in allowing a longer period (for example, if they are

dissatisfied with the length of the extension), or a decision the

Commissioner makes not to allow a longer period.

[Schedule 2, item 4,

subsection 292-102(4)]

2.79 For the avoidance of doubt, and also to maintain consistency

with similar review rights, amendments are also made to clarify:

• the right to object under section 175A of the Income Tax

Assessment Act 1936 or section 97-35 in Schedule 1 to the

Taxation Administration Act 1953; and

• the application of the Administrative Decisions (Judicial

Review) Act 1977.

[Schedule 2, item 4, subsection 292-102(5)]

Contribution found not to be a downsizer contribution

2.80 If the Commissioner becomes aware that a contribution that an

individual has elected to treat as a downsizer contribution does not satisfy

all the requirements to be a downsizer contribution, the Commissioner

must notify the superannuation provider that received the downsizer

contribution of this fact.

[Schedule 2, items 4 and 6, subsection 292-102(7)and item

11 in the table in subsection 355-65(3) in Schedule 1 of the Taxation Administration

Act 1953]

Contributing the proceeds of downsizing to superannuation

2.81 Once notified, the superannuation provider may assess whether

they could otherwise have accepted the contribution from the member

based on their age or their working status. Where a provider determines

that the contribution could have been accepted for some other reason the

contribution will continue to be allowed under the contribution acceptance

rules, but will also count towards the individual’s contributions caps,

generally as a non-concessional contribution.

2.82 It is expected that the superannuation provider would be

required to re-report or amend any previous report they had provided to

the Commissioner indicating that they had previously accepted the

contributions as a downsizer contribution. This information can be

provided to the Commissioner through the provider’s normal

contributions reporting processes.

2.83 The superannuation provider may also decide that the

contribution needs to be returned. Returning contributions is an existing

responsibility that applies to superannuation providers that become aware

of amounts that have been received that are inconsistent with the

contribution acceptance standards (see subregulation 7.04(4) of the

SISR 1994 or subregulation 5.03(4) of the RSAR 1997).

2.84 This could occur where the individual did not satisfy any other

criteria for having member contributions at the time the contribution was

made. If a contribution is returned to a member, it is also expected that the

superannuation provider would be required to re-report or amend any

previous report they had provided to the Commissioner indicating that

they had previously accepted the contribution as a downsizer contribution.

2.85 The Commissioner may also send a copy of the notice to the

Australian Prudential Regulation Authority (APRA).

[Schedule 2, item 4,

subsection 292-102(7) of the ITAA 1997]

2.86 APRA is the regulator that is responsible for compliance with

contribution acceptance rules in respect of APRA regulated funds or

retirement savings providers. The Commissioner would generally send a

copy of the notice to APRA in respect of a provider that APRA regulates.

In such circumstances, the question of whether contributions have been

validly accepted is a matter for APRA and the superannuation provider.

2.87 It is also expected that if an APRA-regulated superannuation

provider is aware that a downsizer contribution that it received does not

meet the definition of a downsizer contribution in section 292-102, it must

report this as a serious breach on its breach register.

2.88 However, as the Commissioner regulates self-managed

superannuation funds, there is no need for a copy of a notification to be

provided to APRA where the Commissioner assesses that a contribution

made to an SMSF was not a downsizer contribution.

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Application and transitional provisions

2.89 The measure starts on 1 July 2018 and applies to dwellings

where the exchange of contracts for their sale occurs on or after that date.

[Schedule 2, item 7]

2.90 Proceeds from properties where the exchange of contracts occur

before 1 July 2018 will not be allowed to be made as a downsizer

contribution. This is despite the potential that the settlement of these sales

does not occur until 1 July 2018 or later. This applies whether or not the

settlement date occurs on or after 1 July 2018.