Have your smashed avocado and enjoy it too.
Are smashed Avo brekkies hindering your first home deposit? The Government has heeded your call and introduced the First home super saver scheme (FHSS), an initiative to assist first home buyers getting into the housing market. The scheme allows you to make voluntary contributions into your superfund that can be withdrawn once you are ready to purchase your first home.
Before you get carried away and start pouring your money into super, first make sure you’re eligible for the FHSS. To qualify you;
- Must be at least 18 years of age
- Must have never owned property in Australia
- Have not previously received the FHSS release of funds
- Live in or intend to live in the property for at least six of the first 12 months from when it is practicable to occupy it
Made it this far? Here’s what you need to know
Voluntarily contributions into your superannuation fund can be made effective 1 July 2017. You can make a maximum of $15,000 of voluntary super contributions per year with a maximum of $30,000 across all years. These contributions can be made before tax (Salary sacrifice) or after tax (claiming a tax deduction) or after tax without claiming a deduction.
From 1 July 2018 you can apply to have your contributed funds released, plus the deemed earnings. The maximum release amount is $30,000 per individual and can be applied through a ‘FHSS determination and a release’ with the ATO.
Pros
Tax Concessions – Concessional contributions are taxed at 15% on entry into your superfund rather than your marginal tax rate. When you have the funds released, the concessional contributions are deemed earnings and will be taxed at your marginal rate, less a 30% tax offset.
Forced Savings – The funds can only be released to purchase your first home (not that 6 week contiki tour you’ve been dreaming of). This is a great way of not accidently spending the money you save on guilty pleasures.
Cons
Administration – There is administration in making contributions and applying for a release of funds. The ATO will administer the process and calculate the available funds that can be withdrawn. The timing of this is important in making sure that the FHSS rules are complied with and avoiding any penalty tax.
Look but don’t touch – The funds can only be used to purchase your first home, which means if you change your mind on purchasing a home you will not be able to withdraw the funds until you meet a condition of release, such as retirement.
Legislation change – Politics can be unpredictable and there is uncertainty whether the scheme will exist in its current form if a new government is elected. Thankfully most legislative changes do not apply retrospectively.
Example
Peter wants to use the FHSS to boost up his savings for his home deposit. His salary is $80,000 per year which would put his marginal tax rate at 32.5%. Peter chooses to salary sacrifice $200 a fortnight into his Superfund as part of the FHSS. This means that $5,200 would be contributed into his Superfund for the year and be taxed at 15% rather than his marginal rate of 34.5%. Peter would save $1014 in tax per year. This is a basic calculation to outline how the tax concessions for contributions could benefit your savings.
Key takeaway
There is no doubt that the FHSS can benefit first home buyers to boost their savings in comparison to a regular savings account. However, due to the nature of the scheme, it is recommended you seek professional advice from a licensed person, to see whether the FHSS is appropriate for your situation. For more information on the first home saver scheme please feel free to contact our office on (02) 4353 2333.