Using your super to buy your first home
Are you a first home buyer scrambling to find a way to afford your dream home?
Well thousands of Australians are missing out on an easy way to save for their first home!
The First Home Buyers Super Saver Scheme was introduced in 2018 to reduce pressure on housing affordability, and it allows buyers to use their superannuation as a way to save for a home deposit. The popularity of this scheme has been quite low, with barely over 15% of first home buyers using this scheme to access money for a deposit last year.
The First Home Buyers Super Saver Scheme allows first home buyers to access their super systems tax breaks while effectively earning interest at a government-set rate at 3.1% per year. Most high-interest banks will only pay 0.5%, which makes saving via the scheme a much better deal.
Basically, you can make voluntary concessional (before-tax) and voluntary non-concessional (after-tax) contributions into your super fund to save for your first home.
Because the interest rate is higher, you will accumulate positive income, far more than you would if you left your savings in your regular accounts. You are then able to release those funds as well as well as the extra that had built up thanks to the high interest rates and put that towards your first home deposit.
By using pre-tax income, the earnings rate can be more than six times higher than you would normally get in the bank.
The First Home Buyers Super Saver Scheme is only available to eligible first home buyers. Eligibility relies on two main factors. You either live in the premises you are buying or intend to as soon as practicable. Or you intend to live in the property for at least six months within the first 12 months you own it after it is practical to move in.
The First Home Buyers Super Saver Scheme is also assessed on an individual basis, therefore couples can have access to the scheme individually for the same property Even if one person is not eligible, the other can still access theirs.
Concessional contributions tend to be more attractive as they are tax deductible. For example, you could arrange to salary sacrifice some of your pre-tax income into your super for the purpose of taking the money out again when you’re ready to buy your home. You also could deposit money into super before the end of the financial year so that you can claim a personal tax deduction for the contribution.
One of the biggest things to keep your eye out for and ensure before you start embarking in this scheme, is that your specific super fund participates in the First Home Buyers Super Saver Scheme in the first place.
You are restricted to investing up to $15,000 per year, with a maximum lifetime sum of $30,000. These contributions must also be under the usual super contribution cap limits.
For concessional contributions, this currently sits at $25,000 a year (which includes your employee’s required 9.5% compulsory payments). For non-concessional contributions, this currently sits at $100,000 a year.
The main difference is that while a concessional contribution is tax-deductible, at least 15% in tax will be deducted. A $10,000 concessional contribution ends up as $8,500 in your account.
If your contribution is not concessional and no tax deduction is claimed, no contributions tax is applied, a $10,000 contribution stays that amount in your account.
Generally, the concessional contribution ends up being better in the long term as you will pay less tax collectively and could potentially boost your personal tax return. Either way, only voluntary contributions count for the First Home Buyers Super Saver Scheme (ie. employer super guarantee amounts cannot be released under the scheme)
You will only be able to access the First Home Buyers Super Saver Scheme money once you are actually ready to buy your home. You will need to access the money before you sign the contract or within 28 days after. If for some reason you access the money but don’t proceed, you will need to return it to your super fund in order to avoid FHSS tax being applied.
While you will not avoid being taxed once you access the money from your First Home Buyers Super Saver Scheme, the amount you are taxed is considerably less than normal rates, including a 30% tax offset.
For more information on the First Home Buyers Super Saver Scheme, please contact us!
Phone: 08 6336 6200
Email: info@ascentwa.com.au
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