Explanatory Memorandum(Circulated by authority of the Treasurer, the Hon Scott Morrison MP)
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' (FHSS Scheme).
1.2 The FHSS Scheme 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 Concessional tax treatment applies to amounts that are withdrawn under the FHSS Scheme.
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 FHSS Scheme 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 FHSS Scheme will help Australians boost their savings for their first home by allowing them to build a deposit inside superannuation.
1.7 As the FHSS Scheme 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.
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.
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.
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 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.
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 FHSS Scheme 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 FHSS Scheme 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.
Detailed explanation of new law
1.33 The FHSS Scheme applies to voluntary contributions that individuals make into superannuation. The eligibility criteria for contributions that can be released under the FHSS Scheme 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 FHSS Scheme 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 FHSS Scheme. Specific changes are therefore not required to enable individuals to make the contributions that are eligible to be released under the FHSS Scheme.
1.36 Individuals who have made voluntary contributions into superannuation can use the FHSS Scheme to request the release of those contributions and an amount of associated earnings from superannuation.
Releasing amounts under the FHSS Scheme
1.37 The FHSS Scheme 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 FHSS determination) that an individual can request from the Commissioner. A FHSS determination specifies the maximum amount that can be released from superannuation under the FHSS Scheme 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 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 FHSS Scheme 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.
Interaction with the sole purpose test
1.47 Section 62 of the Superannuation Industry (Supervision) Act 1993 (SISA 1993) requires that each trustee of a regulated superannuation fund ensure that the fund is maintained solely for one or more of the 'core' purposes that are prescribed by that section. The section also prescribes a number of 'ancillary' purposes.
1.48 In broad terms, these purposes relate to the provision of benefits to members on their retirement, termination of employment, or death.
1.49 However, section 62 also permits the Regulator of a regulated superannuation fund to approve the provision of certain benefits as ancillary purposes under section 62 (see paragraph 62(1)(b)(v) of the SISA 1993).
1.50 In this respect, both the Australian Prudential Regulation Authority and the Commissioner have approved, by legislative instrument, the payment of benefits that are permitted or required to be paid under Part 6 of the SISR 1994 (which relates to the cashing of benefits) - see the Superannuation Industry (Supervision) approval of provision of benefits No.1 of 2007 and Superannuation Industry (Supervision) Act approval of provision of benefits (No.1) 2007.
1.51 Part 6 of the SISR 1994 currently permits a superannuation provider to cash a member's benefits where a condition of release has been satisfied. The conditions of release are specified in Schedule 1 to the SISR 1994 and include the cashing of a benefit in response to a release authority (see for example, subregulation 6.19(3), which specifies that cashing of restricted non-preserved benefits is permissible if it is done in the manner specified in Schedule 1 to the SISR 1994). Given these provisions and the legislative instruments referred to above, the payment of a benefit in response to a release authority is an ancillary purpose for the purposes of section 62.
1.52 From 1 July 2018, references to various types of release authorities will be replaced with a more general reference to the standardised release authority rules in Division 131, and equivalent changes are made to the conditions of release in Schedule 1 to the SISR 1994.
1.53 These changes were made by the Treasury Laws Amendment (Fair and Sustainable Superannuation) Regulations 2017. As a result of these changes, payments of an amount in response to any release authority issued under Division 131 (including one in respect of a FHSS determination) is consistent with the sole purpose test on the basis that making the payment is an ancillary purpose in accordance with paragraph 62(1)(b)(v) of the SISA 1993.
First home super saver determinations
1.54 These amendments insert the rules about FHSS determinations into a new Division 138-A of Schedule 1 to the TAA 1953.
1.55 A FHSS determination is a written determination that states the maximum amount that an individual can request to have released under the FHSS Scheme (the 'FHSS maximum release amount'), as well as the various components that are calculated in working out that amount. [Schedule 1, item 1, subsection 138-10(1)]
1.56 The relevant components are concessional contributions, non-concessional contributions and notional earnings that are associated with each contribution. [Schedule 1, item 1, paragraph 138-10(1)(b)]
1.57 There are a number of rules that determine which concessional contributions and non-concessional contributions can count towards an individual's FHSS maximum release amount. In particular, in working out the FHSS maximum release amount, 'FHSS eligible concessional contributions' are discounted by 15 per cent. As the net amount of the contributions after they are discounted is the only amount that counts towards an individual's FHSS maximum release amount, the net amount must be identified in the FHSS determination.
1.58 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 determination, 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.
1.59 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 138-15]
1.60 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).
1.61 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
1.62 The FHSS Scheme is designed to provide financial assistance to individuals who are genuinely saving for their first home.
1.63 To achieve this outcome, the only individuals who can request a FHSS determination are those who:
- have never held a freehold interest in real property in Australia, a lease of land in Australia as described in paragraph 104-115(1)(b) of the ITAA 1997, or a 'company title interest' in land in Australia;
- 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 138-10(2)]
1.64 To be a valid request, the request for the determination must be made in the approved form. [Schedule 1, item 1, subsection 138-10(2)]
1.65 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).
1.66 Provided that the above conditions are satisfied, the Commissioner must make a FHSS determination in relation to the individual. [Schedule 1, item 1, subsection 138-10(3)]
Requirement to have never held interest in property
1.67 The requirement that an individual has never held a freehold interest in real property in Australia, certain leases of land in Australia or a company title interest in land ensures that individuals who have previously owned a home are unable to use the FHSS Scheme.
1.68 Paragraph 104-115(1)(b) of the ITAA 1997 is about long-term leases over land. Arrangements covered under these paragraphs are leases, renewals or extensions that are for at least 50 years and the terms of which apply to the lessee under substantially the same terms under which the lessor owned or held a lease of the land. This ensures that individuals who have an interest in a leasehold arrangement that is broadly equivalent to ownership will not be able to use the FHSS Scheme.
1.69 The term 'company title interest' is defined by section 317 of the Income Tax Assessment Act 1936. The term relates to land and covers rights to occupy the land (or of a building or part of a building erected on the land) that arise by the virtue of holding shares in a company that owns the land or building. Company title arrangements were a common way to hold interests in multi-storey properties prior to the introduction of strata-title.
1.70 Although company title is not a form of land title, it is economically comparable to owning a direct interest in the real property.
1.71 Because of this scope, the restrictions about real property are broader than simply having owned a home as they also cover an investment property or commercial property. However, the scope is appropriate for determining eligibility to access the FHSS Scheme because another interest in real property in Australia (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
1.72 The requirement that the individual be 18 years of age or older ensures that the parents of children do not use the FHSS Scheme for themselves through their children.
1.73 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 FHSS Scheme only applies in respect of people who can request a determination - it does not prevent voluntary contributions that an individual makes before they turn 18 from being eligible to be released after they turn 18.
Previous requests for release authorities
1.74 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.
1.75 While the requirement that the individual had never owned real property in Australia 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.
1.76 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.
1.77 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 FHSS Scheme and resolved any issues about their determined release amount through the standard review processes available for determinations.
Determining the FHSS maximum release amount
1.78 As noted above, the maximum amount that an individual can request to be released under the FHSS Scheme must be identified by the Commissioner in making a FHSS determination.
1.79 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 138-25]
1.80 The rules for identifying FHSS releasable contributions amounts and associated earnings are explained below.
1.81 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.
1.82 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 voluntary contributions that are eligible to be released under the FHSS Scheme. 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.
1.83 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 FHSS Scheme.
1.84 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
1.85 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 138-30(1)]
1.86 The 2017-2018 financial year is the first financial year that commenced after the Government announcement of the FHSS Scheme in the 2017-18 Budget. Although amounts can only be released from superannuation from 1 July 2018, permitting contributions to be eligible under the FHSS Scheme from the previous financial year allows individuals to make voluntary contributions for the purposes of the scheme from an earlier time.
1.87 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.
1.88 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.
1.89 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 voluntary 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 138-35(2)(a) and (b) and subsections 138-35(3) and (4)]
1.90 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 for FHSS Scheme purposes 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 138-50(1) and paragraphs 138-35(2)(c) and (d)]
1.91 These conditions are explained below.
Limit on the maximum amount of eligible contributions
1.92 The maximum amount of contributions that can be counted towards release under the FHSS Scheme 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 138-35(1)]
Contributions must be voluntary
1.93 The requirement that a contribution be made as 'voluntary' employer contributions or personal contributions ensures that any mandatory employer contributions (such as superannuation guarantee amounts) and Government contributed amounts are not eligible to count towards an individual's FHSS releasable contributions amount.
1.94 In this respect, 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 138-35(2)(b)(i)]
1.95 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.
1.96 In addition to employer contributions that are not mandated employer contributions, member contributions that an individual makes for themselves can be eligible contributions for the purposes of the FHSS Scheme. [Schedule 1, item 1, subparagraphs 138-30(2)(b)(ii)]
1.97 A member contribution is defined in regulation 5.01 of the SISR 1994 as a contribution made in respect of a member by, or on behalf of, the member. However, only contributions made by that member can be eligible.
1.98 Any employer contributions or member contributions that are required to be made due to Commonwealth or State or Territory laws or due to the rules of a superannuation fund are not eligible to be released, to the extent that those contributions are required to be made. [Schedule 1, item 1, paragraph 138-30(2)(b)]
1.99 This limitation ensures that contributions that are not captured under mandated employer contributions but that are nevertheless of a compulsory nature are not eligible to be released. This limitation does not apply to arrangements that were agreed to between an employer and employee, such as contractual arrangements about the way remuneration is to be paid. Although such arrangements may not be able to be unilaterally varied after they have been agreed to, they were nevertheless entered into voluntarily.
1.100 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 FHSS Scheme. 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.
Example 1.1 - eligible contributions to the extent they are not required by legislation or fund rules Amit is a member of Sunrise Superannuation Fund. As well as mandated employer contributions, the rules of the Sunrise Superannuation Fund require that Amit make a minimum non-concessional contribution of 2 per cent of his after-tax salary, which must be matched by his employer. If Amit make non-concessional contributions over this 2 per cent, his employer will also match the contributions up to a maximum of 5 per cent of his after-tax salary.Amit has an annual after-tax salary of $100,000 and is currently contributing 5 per cent of his salary ($5,000) as a non-concessional member contribution. His non-concessional contributions are not eligible to be released to the extent they are required by the rules of the superannuation fund.$2,000 of these non-concessional contributions is not eligible to be released because Amit is required to contribute this amount. However, the $3,000 of contributions Amit has made above this is voluntary and is eligible to be released.This is alongside any other voluntary contributions that Amit may have made to access the FHSS scheme.
Identifying concessional and non-concessional contributions
1.101 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 138-35(2)]
1.102 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 FHSS Scheme if they personally owned the asset that was sold and that asset was real property).
1.103 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 FHSS Scheme will be concessional contributions.
1.104 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.
1.105 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.
1.106 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.
1.107 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 FHSS Scheme. 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.
Contribution must be made under the contribution caps
1.108 Requiring the contributions to have been made within the relevant contribution caps reflects that the FHSS Scheme 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 FHSS Scheme.
1.109 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.
1.110 However, as individuals may have a combination of contributions that are eligible to be released and that are not eligible to be released, ordering rules are included to enable any excess amounts to be applied against contributions in a consistent manner.
1.111 These rules maximise the amount available to be released by treating excess amounts as first coming from contributions that would not be eligible for release (for example, mandatory employer contributions). If an individual's '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 138-35(3) and (4)]
1.112 This approach maximises the amount that is eligible to be released under the FHSSS and resolves issues that would otherwise arise from the contribution caps being applied in an aggregate manner for a financial year. Because of this aggregate approach, specific contributions are not identified as having exceeded the cap (as contributions for a year are simply compared against the relevant cap, rather than the 'last' contributions being treated specifically as excess).
1.113 The approach also lets individuals contribute within the FHSS Scheme limits during the year when their total concessional contributions for the year are not known.
Example 1.2 - non-concessional contributions in excess of the cap Alex has a non-concessional contributions cap of zero because in the previous financial year she made $300,000 of non-concessional contributions, utilising the bring forward provision.Alex inadvertently makes $15,000 of member non-concessional contributions for the financial year. She also has salary sacrifice contributions of $10,000 for the financial year.In total Alex has $25,000 of eligible contributions, but she has exceeded her non-concessional cap by $15,000.Her non-concessional contributions in excess of her cap ($15,000) are greater than her ineligible non-concessional contributions (zero) so the total amount of her eligible FHSS contributions is reduced by $15,000. Therefore only $10,000 is able to be released
Non-concessional contributions do not include excess concessional contributions
1.114 The above example also highlights that in some cases there will be an overlap between concessional contributions and non-concessional contributions.
1.115 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.
1.116 To avoid double counting such contributions for the purposes of identifying eligible contributions to be released under the FHSS Scheme, excess concessional contributions are disregarded in working out an individual's FHSS eligible non-concessional contributions. [Schedule 1, item 1, subsection 138-35(5)]
1.117 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
1.118 As the above limits will cause some contributions to be ineligible, the FHSS Scheme 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.
1.119 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.
1.120 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 138-30(2))]
1.121 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.
1.122 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.
1.123 Prioritising earlier contributions will generally maximise the amount of associated earnings that are calculated in respect of an individual's contributions.
1.124 If an eligible concessional contribution and an eligible non-concessional contribution are made simultaneously, the non-concessional contributions are treated as having been made first. [Schedule 1, item 1, paragraph 138-30(3)(a)]
1.125 This rule ensures that contributions that are made at the same time (which could occur where different types of contributions are made through the same payroll process) are able to be prioritised under the more general ordering rule. Treating non-concessional contributions as being made first maximises an individual's FHSS maximum release amount because their non-concessional contributions are not discounted.
1.126 Furthermore, 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 138-30(3)(b)]
1.127 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 1.3 - 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 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)
1.128 As with the ordering rule for simultaneous contributions, this approach maximises an individual's FHSS maximum release amount. 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.
1.129 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.
1.130 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
1.131 Contributions that are made in respect of defined benefit interest are not eligible to be released. [Schedule 1, item 1, paragraph 138-35(2)(c)]
1.132 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 FHSS Scheme that are unlikely to be released.
1.133 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.
1.134 Any contributions that are made in respect of a constitutionally protected fund are excluded from being eligible. [Schedule 1, item 1, paragraph 138-35(2)(d)]
1.135 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.
1.136 Constitutionally protected funds are funds that are listed by regulations (see subsection 995-1(1)).
Calculating associated earnings
1.137 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 138-40)]
1.138 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.
1.139 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.
1.140 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, subsections 138-30(2 and (3))]
1.141 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 138-40(2) and (3)]
1.142 For contributions made in the 2017-2018 financial year, earnings are calculated from the first day of the year. However, for contributions 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 138-40(3)]
1.143 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.
1.144 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 138-40(2)]
1.145 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.
1.146 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 138-10(4)]
1.147 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.
1.148 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 138-10(5)]
1.149 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.
Treatment of amounts released under the FHSS Scheme
1.150 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]
1.151 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.
1.152 Because amounts can only be released under the FHSS Scheme 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.
1.153 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.
1.154 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 313-20(1) of the ITAA 1997]
1.155 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]
1.156 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.
1.157 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.
1.158 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.
1.159 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. However, the amount included in the individual's assessable income cannot be reduced to less than nil. [Schedule 1, item 12, subsections 313-20(2) and (3)]
1.160 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 1.4 - actual release less than FHSS maximum release amount Eric receives a 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
1.161 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 313-25 of the ITAA 1997]
1.162 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 FHSS Scheme at their marginal tax rate less 30 per cent.
1.163 This treatment means that most individuals will receive an advantage from having utilised the FHSS Scheme relative to the position they would have been in had they not contributed the amounts into superannuation.
1.164 The tax offset is neither refundable nor able to be carried forward.
Withholding on FHSS Scheme amounts
1.165 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]
1.166 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 FHSS Scheme.
1.167 Because the tax treatment of the assessable FHSS released amounts is ultimately determined by an individual's marginal tax rates, the amount that is to be withheld is to be based on an estimate of the amount of tax that will be payable in relation to an individual's assessable FHSS released amount. The method for calculating this amount is to be specified in regulations. [Schedule 1, item 16, subsection 15-10(2)]
1.168 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 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).
1.169 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 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
1.170 The FHSS Scheme is designed to assist individuals in saving for a deposit for their first home.
1.171 The FHSS Scheme applies a post-release compliance approach to ensure that individuals have access to the amounts that they have saved under the FHSS Scheme 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.
1.172 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 FHSS Scheme.
1.173 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
1.174 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 FHSS Scheme;
- 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 313-35(1) of the ITAA 1997]
1.175 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.
1.176 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 FHSS Scheme 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 FHSS Scheme.
1.177 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.
1.178 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.
1.179 Extending the types of contracts that can be entered into so that they include contracts to construct a residential premises ensures that the FHSS Scheme 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.
1.180 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.
1.181 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.
1.182 In some circumstances, an individual may have genuinely had an intention to occupy the premises, but circumstances outside of their control prevent them from occupying it for the necessary period. For example, if a dwelling was destroyed shortly after it was purchased, it would not be possible for the individual to satisfy the 6 month occupancy requirement, despite the fact they genuinely intended to do so. In such circumstances, the later failure to occupy the dwelling would not invalidate the intention that they originally held.
1.183 However, an individual could be regarded as having never had the intention to occupy the dwelling for the necessary period if they made no efforts to do so, or if the reasons for not having done so were entirely within their control. For example, if an individual purchased a dwelling and within a short period of time listed it on the rental market under a 12 month lease, it is unlikely that they would be able to demonstrate that they had intended to occupy the dwelling.
Extension of the period to enter into contracts
1.184 The Commissioner may extend the period for entering into a contract by up to 12 months. [Schedule 1, item 12, subsection 313-35(2) of the ITAA 1997]
1.185 Providing the Commissioner with the ability to extend the period in which an individual must enter into a contract ensures that the FHSS Scheme 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.
1.186 However, to ensure that the obligations under the FHSS Scheme are clear, the period for entering into a contract cannot be longer than 24 months in total.
1.187 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.
1.188 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
1.189 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 313-40(2) of the ITAA 1997]
1.190 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 313-40 of the ITAA 1997]
1.191 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 313-40(3) of the ITAA 1997]
Recontributing amounts if no purchase
1.192 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 313-50(1) and (2) of the ITAA 1997]
1.193 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 313-50(1)(b) of the ITAA 1997]
1.194 Requiring that amounts be recontributed into superannuation ensures that an individual did not receive a benefit from the concessions provided by the FHSS Scheme 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.
1.195 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.
1.196 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).
1.197 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.
1.198 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.
Notifying the Commissioner
1.199 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 313-50(2) and (3) of the ITAA 1997]
1.200 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 313-50(3) of the ITAA 1997]
1.201 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 313-50(2) of the ITAA 1997]
FHSS recontribution must not be a concessional contribution
1.202 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]
1.203 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
1.204 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.
1.205 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 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 313-85 of the ITAA 1997]
First home super saver tax
1.206 Individuals are liable to pay 'first home super saver tax' (FHSS tax) if they do not enter into a contract to purchase or construct their first home or recontribute the required amount into superannuation. Individuals are also liable to pay the tax if they do not notify the Commissioner that they have purchased a home or recontributed the required amount into superannuation .[Schedule 1, item 12, section 313-60 of the ITAA 1997]
1.207 FHSS tax is imposed by the First Home Super Saver Tax Bill 2017, and is equal to 20 per cent of an individual's assessable FHSS released amounts. [Clauses 3 and 4 of the First Home Super Saver Bill 2017]
1.208 As a flat rate of tax, the FHSS tax is unrelated to the personal income tax system or an individual's marginal tax rate.
1.209 Because an individual's liability to FHSS 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.
1.210 Applying FHSS 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 FHSS Scheme.
1.211 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
1.212 The general assessment provisions in Division 155 are used to facilitate assessments of FHSS tax. Division 155 contains standardised provisions for making, amending and reviewing assessments and are already used in respect of Division 293 tax and excess transfer balance tax.
1.213 To utilise the general assessment rules, these amendments include FHSS tax to the list of 'assessable amounts' in Division 155. [Schedule 1, item 17, paragraph 155-5(2)(k)]
1.214 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 FHSS tax.
1.215 As FHSS 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 FHSS 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.
1.216 As the FHSS Scheme 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
1.217 An individual's assessed FHSS 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 313-65 of the ITAA 1997]
1.218 If the Commissioner amends an individual's assessment, any extra assessed FHSS 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 313-70 of the ITAA 1997]
1.219 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.
1.220 Individuals who fail to pay an amount of assessed FHSS 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 313-75 of the ITAA 1997]
1.221 The general interest charge is worked out under Part IIA of the TAA 1953.
FHSS Scheme amounts do not count for means testing purposes
1.222 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.
1.223 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').
1.224 In the absence of any further changes, the amount included in an individual's assessable income when amounts are released under the FHSS Scheme will be reflected in their assessable income and taxable income, which has flow on consequences for those tests that use these concepts.
1.225 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.
1.226 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).
1.227 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 tests that are based on taxable income because the deduction that individuals receive also reduce their taxable income.
1.228 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.
1.229 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:
|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)(i)||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|
|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
1.230 The amendments commence immediately after the commencement of Part 1 of Schedule 10 to the Treasury Laws Amendment (Fair and Sustainable Superannuation) Act 2016.
1.231 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.
1.232 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.
1.233 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)]