Saving the deposit for your first home can be tough, especially when you are busy juggling your career, social life, hobbies and those travel urges.
Unfortunately life doesn’t slow down and wait for us, in fact the opposite seems to occur - life speeds up. Luckily for first home buyers, a new superannuation scheme offers you a way to save more money (and more tax) than if you just used a regular bank account.
The First Home Super Saver (FHSS) scheme was announced by the government in the May 2017 budget, and was designed to help first home buyers save for a home deposit using their super fund. Here's what you need to know about the scheme.
How does the FHSS scheme work?
The scheme allows you to make voluntary super contributions above and beyond your normal super. Each year, you can contribute up to $15,000 into your super. The most you can save through these voluntary contributions is $30,000 over a three-year period. As of July this year, you can start withdrawing those savings to pay the deposit for your first dream home.
Say you’re earning $130,000 a year, and you decide to make additional salary sacrifice contributions of $10,000 into your superannuation. After three years, you will have an estimated $24,777 available for your deposit under the First Home Super Saver scheme. That's $6,191 more than you would have saved for the same amount in a savings account earning 2 per cent p.a. interest.
Why would you bother saving in your super fund?
For starters, you’re putting away savings from your pre-tax income. You can’t do that if you’re squirrelling away part of your pay cheque.
You will still get taxed on the money going into and out of your superfund. However, even allowing for that, your returns on those savings will be higher than what you’d earn in your average savings account.
The main condition is that you can only withdraw $30,000 (plus deemed earnings) under the scheme. But if you’re saving for a deposit with a partner, that’s potentially $60,000 you can both put into the deposit.
Do I need to set up a separate super account?
No. You don’t even need to tell your super fund you’re doing it. These are just voluntary super contributions, same as you’ve always been able to make. Just ask your boss to mark them as that on your pay slip.
You will have to tell the tax office when you’re withdrawing the money. And you must be able to prove you’re doing it for your first home deposit.
The ATO is keeping a close eye on how the scheme is working. If you change your mind, or just can’t produce a signed contract, and you don’t give the money back to your super fund within 12 months, you’ll get taxed 20 per cent of your FHSS scheme savings.
Can I just dip into my current super balance and use that?
No. FHSS scheme savings contributions could only start from July 2017, and can only be withdrawn starting from July 2018. They can also only be voluntary contributions, meaning those that are above and beyond your normal 9.5 per cent compulsory super contributions.
Tell me more about how the tax works.
At the moment, any voluntary pre-tax super contributions you make are taxed at 15 per cent a year if you earn less than $250,000, and 30 per cent if you earn more than that.
When you withdraw the money, you are charged your normal marginal tax rate but you also get a 30 per cent tax offset. So what that means in real money terms is if you’re paying 39 per cent tax normally, you only pay 9 per cent tax on withdrawn funds.
To help you figure out whether this scheme will help you, the ATO has set up an online estimator. Or read more about whether you’re eligible for the scheme on the tax office’s First Home Super Saver Scheme information page.
Looking for ways to save a deposit for your first home? Send us an enquiry or call 1300 131 141 to find out more about our how we can tailor a finance solution for you.
More information about buying a home
Home buyers guide
The BOQ Specialist home buyers guide is a fantastic tool for anyone looking to get into the housing market. The guide offers detailed insights around the factors you need to consider when purchasing a property.
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BOQ Specialist - a division of Bank of Queensland Limited ABN 32 009 656 740 AFSL and Australian credit licence no. 244616 (“BOQ Specialist”).
The information contained in this article (Information) is general in nature and has been provided in good faith, without taking into account your personal circumstances. While all reasonable care has been taken to ensure that the information is accurate and opinions fair and reasonable, no warranties in this regard are provided. We recommend that you obtain independent financial and tax advice before making any decisions.