Business as usual following election outcome and changes to the FHSS Scheme

With the Coalition’s somewhat unexpected victory, the ALP’s intended policies regarding tax treatment of trusts, Division 7A loans, negative gearing, franking credits and CGT are no longer on the agenda. However, changes to the First Home Super Saver Scheme will take effect on 1 July 2019.

This article explains those changes, which the Government has designed to increase the rate people participate in the scheme.

Changes no longer on the agenda

The ALP’s 2019 Federal Election campaign proposed significant reforms to tax policies which, if implemented, would have significantly altered the economic landscape.  Bill Shorten, employed a fairness-focussed rhetoric to garner support for his platform of cutting tax concessions and closing loopholes. However, the Coalition’s unexpected victory wiped a number of these anticipated legislative changes off the political agenda.

Had Labor prevailed their most widely reported policies would have had far-reaching implications.  They included:

1. Franking credit reform – removing the cash refund for certain dividend holders that pay less tax than the prevailing corporate rate. This would have significantly impacted SMSFs investing in shares;
2. Capital Gains Tax (CGT) discount – reducing the CGT discount for assets held longer than 12 months from 50% to 25%; and
3. Negative gearing – limiting negative gearing on established investment properties such that investors would only be able to deduct investment losses from other investment income (rather than against their ordinary salary).

In addition to the above, the ALP signalled an intention to introduce a new 30% standard minimum rate of tax for discretionary trust distributions to adult beneficiaries. This measure was intended to counter ‘income splitting’ where distributions from discretionary trusts are spread between beneficiaries in order to take advantage of lower marginal tax rates.

These changes are no longer in play, however one legislative change was already underway and will impact those saving to purchase their first home.

The First Home Super Saver Scheme (FHSS Scheme)

On 1 July 2017, Parliament implemented the FHSS Scheme to encourage first home buyers to save a deposit by making super contributions.  Individuals who made contributions could later withdraw funds to help pay their first home purchase deposit. The advantage: funds saved in this manner allow savings to accrue in super’s concessional tax environment.

The rules governing the FHSS Scheme are detailed at length in a previous ClearLaw article: Housing affordability and super: upcoming changes for first home buyers and 'downsizers'.

A new amending act[1] (Act) corrects certain technical and drafting errors, clarifies the operation of the FHSS Scheme, builds in a measure of flexibility to improve individuals’ access to the scheme and in the process fixes a number of anomalies and unintended consequences of the original scheme.

Changes to the scheme

The Act will amend the FHSS Scheme as follows:

1. Location of property – previously, a person could use the FHSS Scheme to purchase a first home anywhere. The Act will limit purchases to first home buyers looking to buy or construct a home in Australia.
2. Pre-signing requirements – To get the benefit of the FHSS Scheme, prospective buyers need to complete certain actions prior to signing a contract to purchase or construct their home. This includes the requirements to apply for, and receive, a FHSS determination from the ATO. However, under the old rules a buyer also had to request and receive their first FHSS amount prior to signing.

The Act amends the rules to allow a buyer to enter into a contract to purchase or construct their home up to 14 days prior to making a valid request to release their FHSS amounts. Accordingly, buyers will have more flexibility in the market as they no longer have to wait for their first FHSS amount to be released prior to signing the contract to purchase or construct a home.

3. Timing of purchase – for consistency with the pre-signing amendments, the rules now give a prospective buyer 12 months from the date a valid release request is made to either sign a contract (and notify the ATO) or recontribute the assessable FHSS amount into their super. Under the old rules, the 12 month period would begin to run from the date the fist FHSS amount was released.

These changes apply retrospectively to the FHSS Scheme and all other aspects of the scheme remain unchanged.

More information from Maddocks

For more information, contact Maddocks on (03) 9288 0555 and ask to speak to a member of the Markets and Revenue or General Commercial teams.

You can read earlier ClearLaw articles on a range of topics, including the following related articles:

• Housing affordability and super: upcoming changes for first home buyers and 'downsizers'
• New ATO guidance on the First Home Super Saver Scheme: Guidance note GN 2018/1

Order related document packages

• Superannuation Trust (SMSF)
• Update to SMSF
• SMSF set up + register Corporate Trustee
• Change SMSF Trustee (Cleardocs deed)
• Change SMSF Trustee (death of a trustee)

[1] Treasury Laws Amendment (2019 Measures No. 1) Act 2019