How can you save a bigger deposit for your 1st home through super?

USING SUPER TO BUY A FIRST HOME

Superannuation is designed to help people save for their retirement. So, in most cases you cannot withdraw money from your super until you have retired after the age of 60.

To help first home buyers save a deposit, the Federal Government has introduced the First Home Super Saver Scheme (FHSSS). This scheme allows you to contribute up to $50,000 into your super and later withdraw those contributions to effectively boost the deposit on your first home.

The scheme helps you to save a deposit much more quickly and accumulate a larger deposit when purchasing your first home. Here is how it works.

‍First Home Super Saver (FHSSS)

If you are eligible for the scheme, you can currently contribute up to $15,000 into your super account each financial year up to a maximum of $50,000 across all years. Those contributions can be made either as voluntary (after-tax) contributions, or through a salary sacrifice (before-tax)contribution arrangement with your employer.

If a couple are buying their first home and they are both eligible for the scheme, they potentially can make contributions up to $50,000 each. These contributions could then be withdrawn from their super account .Together with an amount of investment earnings deemed by the Australian Tax Office (ATO) and the general tax concessions available through super, the deposit for their first home will grow larger and faster.

How to qualify under the scheme?

To qualify for the scheme, you must meet certain eligibility requirements. These are shown below.

• You must be aged 18 years or older when you make a withdrawal.
• You must never have owned a property in Australia including an investment property, commercial property or land.
• You must never have previously requested a release of funds from the FHSSS.
• You must occupy the property you intend on buying as soon as practicable and for at least 6 months within the first 12 months you own it once it is practical to move in.

What type of contributions can you make to your super?

• Concessional contributions - these are before-tax contributions made through salary sacrificing, but it does not include Super Guarantee contributions. The current maximum concessional contribution allowed per financial year is $27,500.
• Non-concessional contributions - these are after-tax contributions made from your personal savings. The total non-concessional contribution allowed is $110,000.

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An example: Boosting Madeleine’s first home deposit

Madeleine is less than age 60, earns $60,000 a year and wants to buy her first home.

She annually directs $10,000 of pre-tax ‘salary sacrifice’ income into her super account. After the deduction of 15% contributions tax on this initial amount, her annual savings are $8,500.00.

After three years, Madeleine can now withdraw $25,500 out of her super for a deposit on her first home. The withdrawal is assessed by the ATO and withholding tax calculated at her marginal tax rate, less a 30% tax offset applied to the withdrawal and the associated investment return. Both the assessable amount and the withholding tax is then declared in her tax return within the financial year in which the release has been granted.

Under the FHSSS rules, the ATO calculates the investment return by using a base interest rate and an uplift factor of 3%. The base interest rate is defined as the 90-day Bank Accepted Bill rate. The 90-day bank bill rate moves around in line with trends in investment markets and this additional interest component is called a ‘shortfall interest charge’ and is added by the ATO to the amount that is eligible for withdrawal from the member’s super account.  

As a result of the tax concessions available through super and the interest component that Madeleine is entitled to under the FHSSS, she has boosted her first home deposit and saved much faster than had she used a standard savings bank account.

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How do you withdraw funds from super to use as a deposit on your first home?

Once you have saved a deposit and you are ready to buy your first home, you can apply to withdraw the funds from your super account. The best way to do this is through your MyGov account

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Some important tips you need to know.

• There are limits called ‘Contribution Caps’ other wise known as limits on the contributions you can make into super. Be mindful that if you exceed the Caps by making extra contributions, you could be liable to pay additional tax on your super.
• You can only use the scheme to buy residential premises in Australia for which you intend to live in. You cannot buy a motor home or a houseboat.
• Once your savings have been released, you have up to 12months (or other period allowed) from the date you requested a release of your savings to sign a contract and purchase or construct a home.
• If you have not signed a contract to buy or build a home within 12 months, you can: apply for an extension of time, recontribute the assessed amount back into your super; or keep the released amount and be subject to a flat tax equal to 20% of the assessable released amount.

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In summary, the FHSSS is a powerful tool to help make your dream of home ownership a reality.

You will find more detailed information on the FHSSS at the Australian Tax office (ATO) website, see link below.

https://www.ato.gov.au/individuals/super/withdrawing-and-using-your-super/first-home-super-saver-scheme/#AbouttheFHSSscheme

If you would like a PictureWealth adviser to assist you in any way, do not hesitate to contact us on 1800WELFIE (1800 935 343) or by email at Financialwellness@picturewealth.com

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