First home super saver scheme what it is and how it works...
Wayne MorganPosted on 23 Feb 2018
As we all know housing prices are a major barrier for first home buyers and it’s hard to save a deposit in a property market that is constantly increasing in value.
From 1 July 2017, the Federal Government have introduced the consultation draft legislation to implement the First Home Super Saver Scheme that will allow first home buyers to tap into some of their superannuation early to help them save a deposit for their home faster.
This scheme will help Australians boost their savings for their first home by allowing them to build a deposit inside their superannuation. Individuals will be able to make a voluntary contribution of up to $15,000 per year to a maximum of $30,000 into their superannuation accounts. Contributions, plus deemed earnings, may be withdrawn from 1 July 2018 and will be taxed at the individual’s marginal rate, less a 30% offset.
The Federal Government suggests this scheme could boost the savings that can be put toward a deposit by 30% compared with savings through a standard deposit account. The government states that many employees will be able to take advantage of salary sacrifice arrangements to make pre-tax contributions to their superannuation fund. If an individual is self-employed or their employer doesn’t offer salary sacrifice they can claim a tax deduction of personal contributions – which means your savings are coming out of pre-tax income.
To read the Governments fact sheet on this scheme click here.
So what does that mean for first home owners?
Meet Michelle and Luke – our first home buyers who are saving for their deposit for their first home.
If Michelle earns $70,000 annually and makes an annual salary sacrifice contribution of $10,000. After tax this would add $8,212 to her superannuation account each year. tax this would add $8,212 to her superannuation account each year.
If Michelle added $10,000 each year for 3 years she would be able to save a total of $25,892, which is $6,210 more than savings she would have made if the money was put into a standard deposit account.
If Luke earnt the same and made the same salary sacrifice their combined savings would be $51,784, $12,420 more than a standard deposit account.earnt the same and made the same salary sacrifice their combined savings would be $51,784, $12,420 more than a standard deposit account.
Annual Salary Sacrifice
Amount available for deposit (post tax)
Increase in deposit size compared to savings in a standard deposit account
How much money can you contribute into your superannuation as part of the scheme?
You can contribute a maximum $15,000 each year and a total contribution of $30,000.
How would do you access your savings?
The consultation draft states you will need to apply to the ATO, declaring your eligibility. The ATO will assess your application and if approved will organise for your money to be released from your superannuation. There will be regulations around how much time you have to buy a home once you receive the money. With the right planning, you would be able to organise to have the funds available on the day of contract exchange, therefore using this money for your home deposit.
Who is eligible to use the First Home Super Saver Scheme
The consultation draft provides that you may apply to have your savings released if you are 18 years of older, you have not used the FHSSS before and you have never owned a real property in Australia. That means that if you have owned a commercial, investment property or vacant land you are not eligible.
How long do you have to spend the savings?
You have 12 months to buy a property with these savings, however you can ask the ATO for a 12-month extension if needed.
What happens if I don’t buy a home within the allowed time?
You would be required to recontribute the released funds into your Superannuation account or pay tax equal to 20% of the released amount. If you didn’t put the money back into your superannuation the amount of tax payable will remove any benefit of the tax concession you received by using the First Home Owner Savings Scheme.
How much can you access?
You will be able to access the maximum release amount, which is the sum of your eligible contributions. For example, if you made concessional contributions you would be able to withdraw 85% of those contributions as 15% is payable in tax. The federal budget fact sheets also state “Non-concessional contributions can also be made under the scheme. While these contributions will not benefit from a tax concession, earnings on these contributions will benefit from the concessional rate of tax in superannuation and the higher returns often realised inside superannuation,” the fact sheet states. “When non-concessional amounts are withdrawn, they will not be taxed.”
Do I need to live in the home?
Yes, you must occupy the premises as soon as practical and for at least 6 months of the 12 months after it is practicable to do so. If you bought a house and land package, you would need to occupy the house for at least 6 months for the first 12 months after the house is built. These measures are in place to ensure the funds aren’t used for investment properties.
What if I buy land and need to build a house?
If you bought a house and land package using the saving scheme, you are required to live the house for at least 6 months in the first 12 months after the house is built.
What type of property do I have to buy?
The consultation draft states the money can only be used to purchase residential properties. This could be an apartment, house, vacant land (if land is to be built on), but does not allow for properties that are not capable of being occupied as a residence. It does not include a caravan or houseboat.
How much tax would be withheld on withdrawal?
The ATO would withhold an amount before releasing the savings to you to ensure that you won’t have to pay the tax in your next income tax return. The amount withheld would reflect the ATO’s best estimate of your tax payable. If it is unable to make an estimate, it would withhold 17% of the withdrawal amount.
If you'd like more information about the First Home Super Saver Scheme you can read the consultation draft: key design features here.