Helping kids into the housing market

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Home lenders have been tightening their lending criteria over recent years and many are now looking for home buyers to have a minimum deposit of 20% of the purchase price before they will approve a loan.

As housing prices have continued to spiral, the prospects of any young people having saved a 20% deposit is becoming increasingly difficult. After all, 20% of a $600,000 purchase is $120,000!

So, how can someone borrow for a home if they cannot manage to save their 20% deposit?

There seem to be a couple of solutions:

  1. Get Mum and Dad to lend or gift the shortfall

It is not uncommon these days for Mum and Dad to either lend the deposit to their kids or gift the money to them. Often this involves Mum and Dad withdrawing part of their super to give their kids a lift up into the housing market. Whether this is an appropriate strategy is very much dependent on individual personal circumstances and the capacity to help kids out.

  1. Mortgage Insurance

Where borrowers don’t have their 20% deposit saved, lenders will often require a borrower take out mortgage insurance.

  1. Personal Guarantee

We are seeing more and more Mums and Dads agreeing to provide a guarantee of all or part of their kid’s loans.

Providing a guarantee for your kid’s loan will often involve Mum and Dad providing some form of security for the guarantee. Generally, the kid’s home loan lender will take a mortgage on Mum and Dad’s home.

 

Source:  Peter Kelly | Centrepoint Alliance

Budget 2018 – What does it all mean?

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What does this year’s budget have to offer?

With a federal election clearly in the wind, the budget contained a little bit of something for almost everyone.

Unlike the 2016 budget that included massive changes to super, this year’s budget was a lot lighter in terms of super announcements. However, there were a few including:

  1. Allowing people aged between 65 and 74 to make voluntary contributions super in the year after they cease working, without having to meet the work test. This will apply from 1 July 2019.
  2. Increasing membership of self-managed super funds from four to six, from 1 July 2019.
  3. Moving to a three-year audit cycle for SMSFs with good record keeping and compliance history. This will commence from 1 July 2019.
  4. The ability for younger people and those with less than $6,000 in super to opt-in for life insurance cover inside their super. This differs from the current system where they have to opt-out if they don’t want life cover.
  5. Some relief from the risk of breaching the concessional contribution cap for people earning more than a combined $263,157 from more than one employer.

The budget also contained some immediate tax relief for low to middle-income earners with the introduction of a Low to Middle Income Earners Tax Offset of up to $530. This will apply from 1 July 2018 and will be paid as a lump sum at the end of the financial year once an income tax return has been lodged.

There will be tax cuts across the board, however, significant changes, particularly for higher income earners, won’t come in to effect until 1 July 2024.

On the good news front, the planned increase in the Medicare Levy that was due to come in from 1 July 2019 is no longer proceeding.

The big winners from the budget were older Australians with considerable funds being directed to the delivery of residential and in-home aged care services.

The budget makes proposed changes to the Pension Work Bonus to take effect from 1 July 2019, which allows people to earn more from employment and self-employment in retirement without it affecting their age pension, and an expansion of the Pension Loans Scheme. The Pension Loans Scheme enables people to access a government-sponsored reverse mortgage scheme to top up their pension payments.

 

Source:  Peter Kelly | Centrepoint Alliance

Super contributions – Concessional & Non-Concessional

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Most people are aware there are two main types of superannuation contributions:
1. Non-concessional contributions, and
2. Concessional contributions

Non-concessional are personal contributions we make to super, for example; contributions we make for our spouse and for our children under 18 years of age.

These are contributions we do not intend to claim tax deductions for and are usually made from our after-tax income, from savings or from the proceeds from the sale of something such as an investment property.

There are a number of important rules around making non-concessional contributions, including:

  • The usual rules around age limits. That is, contributions may be made by someone under the age of 65. However, if aged between 65 and 75, a work test must be met in the year the contribution is being made. Non-concessional contributions can’t be made by people aged 75 or over.
  •  Non-concessional contributions are subject to an annual limit of $100,000 per year. However, where a person has a ‘total superannuation balance’ that exceeds $1.6m, they are no longer able to make non-concessional contributions. The total superannuation balance is the total of all amounts a person had in super at the end of the previous financial year.
  • A unique feature of non-concessional contributions is the ability to bring forward up to three years contributions, if under age 65. This means you may contribute up to $300,000 in one year, but then nothing in the next two financial years. The contributions that may be made under the three year bring forward rule are scaled back when your total superannuation balance exceeds $1.4m.

Concessional contributions are virtually any contributions that are not a non-concessional contribution. They include contributions made by an employer, tax-deductible personal contributions, and contributions made by third parties. Also, contributions made by a parent or grandparent for children aged 18 or older are treated as concessional contributions.

When concessional contributions are received by a super fund, they are treated as income of the fund and are taxable at a rate of 15%. This is often referred to as ‘contributions tax’.

Concessional contributions are subject to a maximum cap or annual limit of $25,000. This is a reduction in the limits that applied in 2016-17.
Exceeding either the concessional or non-concessional contribution cap can have tax implications, so this is best avoided.
If planning to make either non-concessional or concessional contributions before 30 June this year, consider seeking the assistance of a qualified financial planner.

Source: Peter Kelly | Centrepoint Alliance