Accumulating a deposit is the toughest challenge for first home buyers but a new Commonwealth Government initiative aims to change that by ‘supercharging’ the savings of young Australians.
The First Home Super Saver Scheme (FHSSS) will allow first-home buyers to save funds at a discounted tax rate by making additional voluntary contributions to their super fund.
When the concessional contributions and earnings are withdrawn, they will be taxed at their or your marginal tax rate, less a 30 percent offset, meaning first home-buyers will be able to achieve their savings goals more quickly.
The scheme, which starts on 1 July 2018, provides employees with the option of “salary sacrificing” up to $15,000 per annum to a total of $30,000 across all years. This will help first home buyers save faster with the concessional tax treatment within super.
To qualify you must be over 18 years of age, have not previously owned property in Australia, have not previously released FHSS funds and either live (or intend to live) in the premises you are buying as soon as practicable (for at least 6 months of the first 12 months you own it, after it is practical to move in).
For young South Australians, the FHSSS offers special advantages. A new national report from Bankwest reveals first home buyers in South Australia need the lowest deposit of anywhere in the country and correspondingly can save for it in the shortest time.
South Australian first home buyers require a deposit of just $80,985 to purchase a median-priced house, the lowest deposit of any mainland state and territory. This relatively low amount means SA first home buyers need to save for only 3.8 years, well below the national average of 4.6 years.
A good way to make voluntary contributions under the FHSSS is to speak to a financial adviser and employer about salary sacrificing a proportion of your pay. This involves nominating an amount of your pay to be directed to your super fund instead of your bank account. Salary sacrifice contributions are considered concessional (before-tax) contributions and are taxed at 15% on entry into the super fund (rather than your usual marginal income tax rate).
If you are self-employed you can still take advantage of the FHSSS but you will need to make contributions to your super fund yourself. You may be able to claim a tax deduction for these contributions, but we recommend you contact the ATO or your Accountant before claiming this tax deduction.
Transfer existing savings
You can transfer your current savings as a lump sum to your super fund. This is a non-concessional (after-tax) contribution and as such no tax is levied on the funds when deposited into your super fund. The investment earnings are taxed at a maximum rate of 15%, rather than your marginal tax rate.
No effect on First Home Owners Grants
The FHSS will not affect your eligibility for the First Home Owners Grant (FHOG). First Home Owners Grants are based on state law, not Commonwealth. More information on the FHOG can be found on the Revenue SA website: https://www.revenuesa.sa.gov.au/grants-and-concessions/first-home-owners
Singles or couples
For couples, both individuals can take advantage of the scheme so can, therefore, access up to $60,000.
Family tax benefit and child support
Your assessable FHSS released amount is not included in your assessable income for calculating family assistance and child support payments.
Only voluntary contributions are approved
Only voluntary contributions (i.e. not your mandatory employer superannuation guarantee contributions) can count towards your FHSS.
There is a limit
First-home buyers are able to contribute up to $15,000 a year and $30,000 in total, within existing caps. The amount you choose is up to you, so long as your voluntary contributions don’t equal more than the $15,000 a year.
Keep good records
First home-buyers are required to keep accurate records of the contributions they’ve made and are able to withdraw – the FHSS isn’t a separate cap to the existing super contributions caps. Also, be aware that if you receive FHSS amounts, you will receive a payment summary, that will need to be included in the assessable amount in your tax return for the tax year you made your request for release.
Deemed rate of interest
Deemed rate of interest irrespective of the investment returns generated by your super fund, for the FHSSS, the amount of earnings that can be released will be calculated using a deemed rate of return based on the 90-day Bank Bill rate plus three percentage points. The 90-day Bank Bill rate was 1.77% as at February 2018.
Check the dates
Super contributions can be made from 1 July 2017 and withdrawals will be allowed from 1 July 2018.
Check your eligibility
The ATO is administering the FHSSS, and it will be the ATO that determines whether a person is eligible to withdraw the savings, determines the value of contributions to be released by the super fund, and the ATO will also instruct the super fund to make the payments.
If you do not buy your first home you will either need to request an extension (up to 12 months), re-contribute the FHSS withdrawal amount back to your super fund or pay tax of 20% on the withdrawal amount (which is designed to remove the tax benefit you received for using the FHSS).
Before you start saving:
Advice SA can provide advice on the advantages and implications of the FHSS scheme. In particular check that your nominated super fund/s will release the money. (FHSSS contributions may not be released from defined benefit interests or constitutionally protected funds.). You should also ask your fund about any fees, charges and insurance implications that may apply.
Jill is on the 34.5% marginal tax rate (between $37,001 and $87,000 pa) and wants to buy her first home. Jill has budgeted that she can afford to save $10,000 per annum from her after tax employment income. Alternatively, Jill can put $15,000 of her before tax employment income into super resulting in more after tax cash-flow and saving a larger deposit for her first home, as shown below:
|Savings in Bank||Savings in Super|
|Income Tax (including Medicare)||$12,147||$6,747|
|Take home pay||$47,853||$38,253|
|Savings in Bank||$10,000||N/A|
|Money for general life expenses||$37,853||$38,253|
|Tax on super Contributions||N/A||15%|
|Net Super Savings||N/A||$12,750|
|Interest rate in bank||2%||N/A|
|Deemed Interest rate in Super||N/A||4.77%|
|Interest earned in bank||$200||N/A|
|Deemed Interest earned in Super||N/A||$608|
|Tax on interest earned in bank (at Marginal Tax Rate)||34.50%||N/A|
|Tax rate on interest earned in Super (at Marginal Tax Rate less 30% offset)||N/A||4.50%|
|Tax on interest earned in bank||$69.00||N/A|
|Tax on interest earned in Super||N/A||$27.37|
|Tax rate when withdrawing Super (at Marginal Tax Rate less 30% offset)||N/A||4.50%|
|Tax amount when withdrawing Super||N/A||$599|
|Total Savings available in Super||N/A||$12,730|
|Net benefit of salary sacrifice & FHSSS||N/A||$2,999|
At the end of one year Jill could have $3000 more benefits than savings in a bank, as long as you are committed to the specific rules of FHSS scheme.
For more information the government has created an online estimator to help you understand the advantages of saving for a home deposit through super. You can access the estimator by clicking here or visit http://www.homeownership.gov.au/
This information is of a general nature only and has been prepared without taking into account your particular financial needs, circumstances and objectives. While every effort has been made to ensure the accuracy of the information, it is not guaranteed. You should obtain professional advice before acting on the information contained in this publication.
Mark Bastiaans is an Authorised Representative #296627 of Guideway Financial Services Pty Ltd ABN 46 156 498 538 AFSL 420367.
The information provided above contains general advice that does not take into account your financial situation, specific needs or objectives and is not intended to be personal financial advice and should not be relied upon without written advice from Guideway Financial Services Pty Ltd.