The First Home Super Saver Scheme (FHSSS) has now passed parliament… Great! But what does that actually mean for first home buyers and who is it relevant for? Let’s take a look.
What is the scheme all about?
According to the government, the First Home Super Saver Scheme (FHSSS) will help eligible Australians boost their savings for their first home by allowing them to save part of their deposit inside the lower-taxed environment of the superannuation system.
How much can I contribute each year?
The maximum amount individuals can contribute annually to their super account under the FHSSS is $15,000. All contributions counted towards the scheme must be voluntary contributions, in addition to the super contributions already made by your employer.
The FHSSS also excludes employer contributions made to defined benefit schemes. However, Defined Benefit Division (DBD) members can make additional voluntary or salary sacrifice contributions (through an arrangement with their employer) into their accumulation component, subject to the annual contributions limits detailed below.
Your total super contributions for the year, including the contributions made under the FHSSS, must be within the normal annual limits or caps for concessional (before tax) or non-concessional (after-tax) super contributions. For the 2017/2018 financial year, the annual contributions caps are:
- Concessional (before tax) contributions cap: $25,000
- Non-concessional (after-tax) contributions cap: $100,000
How much can I direct to super?
Individuals will be limited to a maximum of $30,000 in savings under the FHSSS.
The individual-based limits will give couples the chance to save up to $60,000 using the scheme.
Will I pay tax?
Yes. As is currently the case, concessional (pre-tax) super contributions are taxed at 15% p.a. (for income less than $250,000 p.a.) and 30% (for income greater than $250,000 p.a.).
Upon the release of funds, your FHSSS contributions and deemed earnings will be taxed at your marginal rate less a 30% tax offset. For example, if your marginal tax rate is 39% including the Medicare levy, you will pay 9% tax on withdrawn funds.
What’s the potential benefit?
The Federal Government has released an estimator to illustrate the potential dollar benefit of the FHSSS.
As an example, if an individual earning $130,000 p.a. makes additional salary sacrifice contributions of $10,000 p.a. to their superannuation for 3 years, they will have an estimated $24,777 available for deposit under the First Home Super Saver Scheme. These savings under the FHSSS are $6,191 more than had they saved the same amount in a bank account earning 2% p.a. interest.
We highly recommend seeking both tax and financial planning advice relating to the FHSSS given the potential complexities related to your personal circumstances (i.e. HELP Debt, impact on personal cash flow and other long term goals).
Can I use my existing super balance to buy my first home?
No – you cannot drawdown from your current super balance. The FHSSS will only apply to voluntary contributions made after 1 July 2017 and will be available to be drawn from 1 July 2018.
What return will I get from my superannuation?
Investment returns on FHSSS contributions will earn a deemed rate of return based on the 90-day bank bills rate (Australia’s benchmark indicator for short term interest rates) plus 3% – approximately 4.70% p.a. as at January 2018.
The deemed rate of return is independent of the investment earnings in your superannuation fund. Therefore, the return the Australian Tax Office (ATO) deems you have earned on FHSSS super contributions may be more or less than what you could have earned outside the super system, or the rate of investment earnings for the balance of your super account.
What happens if I change my mind and don’t purchase a home?
The ATO will monitor this scheme to ensure money released from super is used to fund the purchase of your first home.
According to the ATO, a 20% tax on your assessable FHSSS amount will be charged if you do not notify them that you have signed a contract to purchase/build a home or have not re-contributed the amount back to super within 12 months.
A word from the wise, the ATO are still finalising the mechanisms of the scheme and what will happen if you change your mind and decide not to, or are unable to, buy a first home. It’s probable that your savings under the FHSSS may be locked in superannuation until you meet another condition of release – i.e. reach preservation age 65 or alternatively, the 20% FHSSS tax will be payable.
Can I buy a property with someone else?
Yes. FHSSS contributions are assessed individually, even if the money goes towards a house that is purchased with someone (spouse) who has owned a home previously.
Will I need to add additional savings of my own?
It depends on the property you are planning to purchase – the type of property, its location and the deposit required. In many cases, given current housing markets, $30K per individual is not going to be enough to pay for a deposit on your first home and you will need additional savings.
More questions? Still not clear?
Please contact a DPM Private Wealth Consultant to discuss on 1800 376 376 or enquire for a free no-obligation initial consultation here.
* The information contained in this site is general and is not intended to serve as advice. DPM Financial Services Group recommends you obtain advice concerning specific matters before making a decision.