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Steady as she goes for super except for downsizers

By  Stephen Sealey

Small business owners looking to downsize their family home are potential winners in the 2017 Budget with a new exemption from the existing superannuation contribution cap.

After the raft of changes to super laws unveiled in Treasurer Scott Morrison’s first Budget last year, the 2017 document largely leaves the policy area alone.

However, one key Budget measure intended to simultaneously improve retirement savings and housing affordability is also likely to please small business owners approaching the end of their working lives.

Under the move, people aged 65 and over will be able to make a non-concessional contribution to superannuation of up to $300,000, using the proceeds from the sale of a principal residence owned for at least 10 years.

Mr Morrison said the initiative reduced a barrier to downsizing for older people and could also free up larger homes that would appeal to younger, growing families.

He also used tonight’s Budget to reiterate the Government’s recent superannuation tax reforms as important to ensuring the system became more sustainable and flexible.

A revised version of the 2016 Budget changes to superannuation laws will come into effect on 1 July 2017. Retirement accounts, which have tax free earnings, will be capped at $1.6 million with any excess to remain in an accumulation account and continue to be taxed at 15 per cent.

The annual amount people aged under 65 can contribute to super has been capped at $100,000 in non-concessional contributions while those over 65 must meet a work test to contribute $100,000 a year into super.

It is this cap that tonight’s change applies to but only for those selling a home they have owned for at least a decade.

In recent years, many small business owners have taken advantage of the opportunity to buy a commercial premises and lease it back to their business using a Self Managed Superannuation Fund (SMSF). The SMSF is also allowed to borrow for funds for the purchase through a limited recourse arrangement.

New laws announced in last year’s Budget mean the $1.6 million cap on tax-free super retirement pensions due to start on 1 July 2017 would include property assets held in super.

The Budget has introduced a change to improve the integrity of the new system in relation to the use of limited recourse borrowing.

“Limited recourse borrowing arrangements (LBRA) can be used to circumvent contribution caps and effectively transfer growth in assets from the accumulation phase to the retirement phase that is not captured by the transfer balance cap,” the Budget papers said.

“The outstanding balance of a LRBA will now be included in a member’s annual total superannuation balance and the repayment of the principal and interest of a LRBA from a member’s accumulation account will be a credit in the member’s transfer balance account.”