If you’re looking to purchase your first home in the near future, you’re probably looking to save the largest deposit in the smallest amount of time. One way you may be able to boost your funds is through the First Home Super Saver Scheme, administered by the Australia Taxation Office.
What is the First Home Super Saver Scheme?
The First Home Super Saver Scheme allows individuals to make voluntary contributions of up to $15,000 per year and $30,000 in total, to their superannuation account to purchase a first home. As of July 1 2018, it is possible to withdraw these voluntary contributions for a first home deposit.
For those utilising the scheme, it is worth noting some important FHSS law changes that have come into effect on and after July 1 2019. They can be viewed here.
While voluntary contributions includes both pre-tax and post-tax funds, the tax concession benefits of the scheme mostly lie with pre-tax contributions. For first home buyers, this will usually be through salary sacrificing arrangements with their employer. Because salary sacrificed contributions are pre-tax, the impact of saving on your back pocket will be less. For example, on a wage of $70,000pa salary sacrificing $500 to super, your take home pay would only be deducted $350 rather than the full $500.
Here’s an example of how the scheme works:
Michelle earns $60,000 a year and wants to buy her first home. Using salary sacrifice, she annually directs $10,000 of pre-tax income into her superannuation account, increasing her balance by $8,500 after the contributions tax has been paid by her fund. After three years, she is able to withdraw $27,380 of contributions and deemed earnings on those contributions. Her withdrawal is taxed at her marginal rate (including Medicare levy) less a 30 per cent offset. After paying $1,620 of withdrawal tax she has $25,760 that she can use for her deposit. Michelle has saved around $6,240 more for a deposit than if she had saved in a standard deposit account. Michelle’s partner Nick has the same income and also salary sacrifices $10,000 annually to superannuation over the same period. Together they have $51,520 that they can put towards a deposit, $12,480 more than if they had saved in a standard deposit account.
Things to keep in mind about the First Home Super Saver Scheme:
- The regular superannuation contributions by your employer are not relevant to the scheme, these remain preserved for retirement. Therefore, higher income earners will take longer to benefit from the scheme.
- While post-tax contributions will not benefit from the tax concession, earnings on these contributions will benefit from the concessional rate of tax in superannuation and the higher returns often realised inside superannuation. When these funds are eventually withdrawn, they will not be taxed.
- The scheme has a maximum voluntary contributions of up to $15,000 per year and $30,000 in total. Therefore, saving would need to occur for at least 2 years (dependent on your compulsory super contributions) to withdraw the maximum of $30,000 for your deposit.
- Be aware of how much your employer is contributing. The maximum pre-tax contribution is $25,000 for compulsory and voluntary contributions combined.
- If you are looking to purchase a property with another person (a partner, sibling etc.), you can get twice the benefit if they are able to take advantage of the scheme as a first home buyer too.
Combining tax concessions on pre-tax contributions and the higher returns often realised inside superannuation as opposed to a savings account, you may be able to reach your deposit goal quicker and get into your new home sooner. Happy saving!
Let us know if we can assist you in the process of purchasing your first home, or pre-qualify for a home loan now. If you haven’t quite reached your savings goal, there are options available for those with minimal or part-deposits.
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