With the 2024 Federal Budget set to be revealed on 14 May, Angus Raine, Executive Chairman of Raine & Horne, is urging the Albanese Government to reassess annual caps on non-concessional superannuation contributions and balance transfer caps.

Mr Raine believes this measure could mitigate the housing shortage by freeing up additional housing stock currently held by empty nesters.

Australia is in the grip of a housing crisis. The Commonwealth and state/territory governments have agreed that 1.2 million new, well-located homes are required over 5 years from mid 2024.[i]. 

“However, there are few incentives for retirees to sell their existing investment properties and transfer the sale proceeds into the lightly-taxed superannuation environment,” Mr Raine said.

Mr Raine draws parallels to the past like the Howard government’s superannuation changes in 2007. Under the changes introduced in that year’s budget, investors were limited to making after-tax super contributions of $150,000 a year, or $450,000 averaged over three years. But transitional rules allowed contributions of up to $1 million between 10 May 2006 and 30 June 2007[ii].

“Property listings skyrocketed as investors cashed in their property assets and pumped the funds into superannuation to take advantage of the tax changes,” Mr Raine said.

“At present the annual caps for non-concessional contributions stand at $110,000, rising to $120,000 from 1 July 2024.

“This means that a couple who own a property in joint names can use the sale proceeds of a rental property to add just an extra $240,000 to their super assuming a sale post-1 July 2024[iii]. This appears insufficient when you consider that the median house prices are $1.421 million in Sydney, $972,000 in Canberra, $942,000 in Melbourne, and $920,000 in Brisbane."[iv]

Yet the bigger issue is the balance transfer caps

The transfer balance cap refers to the total amount of superannuation that can be transferred from the accumulation phase into the retirement phase after age 60 by purchasing a retirement income stream.

At present, the transfer balance cap stands at $1.9 million – a figure that will remain unchanged post-1 June 2024[v].

Mr Raine said, “In cities such as Sydney and Melbourne long term property investors are likely to have made a substantial capital gain from their rental property. This could see many investors breach the balance transfer caps if they want to transfer sale proceeds of a property investment into super. 

“Disregarding the impact of capital gains tax (CGT), the caps that apply to non-concessional contributions together with the balance transfer cap of $1.9 million, act as a real disincentive for retirees to sell a rental property and deposit the proceeds into super.

“The value of the property in many capital cities could see retirees breach the balance transfer caps, so the government needs to consider increasing this cap significantly in next week’s budget as a way of flushing out assets held by older investors to help address housing shortfalls.”

A review of the annual caps could free up housing stock

Property is one of Australia’s most popular investments. Close to 2 million Australians own a rental property[vi].  However, many retirees may be ready to exit the property market in favour of a super-based income stream.

“I am calling on the Albanese Government to review both the non-concessional super caps as well as the balance transfer limit as a means of encouraging Australians in, and approaching, retirement to sell investment properties.

This could add to the pool of housing stock available to first home buyers and upgraders, and ease some of the gridlock we currently see in the property market,” concluded Mr Raine.

The rental affordability and vacancy crisis also demands decisive action

The upcoming Federal Budget presents an opportunity to enact policies that alleviate the burden on renters. 

Addressing the pressing issue of rental affordability in Australia, Mrs Maria Milillo, Head of Property Management at Raine & Horne, highlighted the critical need for immediate relief for renters. 

“With vacancy rates reaching historic lows, many Australians are struggling to afford rental accommodation,” she said.

Mrs Milillo underlined the significance of the Commonwealth Rent Assistance (CRA) program, which provides support to tenants receiving specific social security payments such as Newstart Allowance, Disability Support Pension, or Age Pension, and those who are not residing in public housing.

“The CRA program is vital in effectively mitigating rental cost increases. To further support vulnerable renters, CRA should be pegged to market rentals rather than the CPI[vii], ensuring it keeps pace with the evolving rental market landscape,”” Mrs Milillo said. 

“CPI is increasing by 3.5% in the 12 months to March 2024, yet aggregate rental prices are up 7.7%.”

[i] https://treasury.gov.au/housing-policy/accord

[ii] https://www.afr.com/politics/costello-sweetens-super-changes-20060906-jf5sm

[iii] https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/super/growing-and-keeping-track-of-your-super/caps-limits-and-tax-on-super-contributions/non-concessional-contributions-cap

[iv] https://www.corelogic.com.au/__data/assets/pdf_file/0015/22533/CoreLogic-HVI-MAY-2024-FINAL.pdf

[v] https://www.ato.gov.au/tax-rates-and-codes/key-superannuation-rates-and-thresholds/transfer-balance-cap

[vi] https://www.ato.gov.au/media-centre/don-t-bet-against-the-house-this-tax-time

[vii] https://www.dss.gov.au/housing-support/programmes-services/commonwealth-rent-assistance#3