Saving for a home? Get to buy your first home faster!
Nearly everyone is interested in buying their first home.
And with the end of current financial year fast approaching, here’s how you can take advantage of savings that are available right now!
First Home Super Savings Scheme (FHSSS)
1. If you are eligible (eg over 18 years, first home buyer), you can been make additional voluntary super contributions to FHSSS in the 2017/18 financial year.
This means you are able to save part of the deposit for your home inside super, which is lower-taxed.
2. Contributions to super using FHSS
· The maximum you can contribute to super for a home deposit with FHSSS is $30,000
· The annual limit is $15,000
· Any extra contributions to super have to stay within super contributions limits ie:
o Pre-tax caps: $25,000 per annum ( including those from your employer)
o After tax cap : $100,000 ( ie a contribution you choose to make from your savings)
· An eligible couple can save up to $60,000 under the scheme
3. What type of contributions count?
These can be:
· Personal non-concessional (after-tax) savings
· Personal tax-deductible contributions
· Salary sacrifice
4. When can you withdraw your funds from super to pay for your home?
· You can apply to withdraw FHSSS funds from 1 July 2018
· The maximum withdrawal amount is
o 85% of voluntary ( pre-tax) contributions
o 100% of any after-tax contribution PLUS
o earnings on these accounts at a deemed rate of interest ( also see 5. Below)
5. What's the interest rate on my savings?
· The interest rate is decided using a formula calculated by the tax office – this was 4.7% for 2017/18 at the time of writing.
· The rate is guaranteed by the tax office, and it’s certainly better than the saving and term deposit interest rates currently available at most banks!
· Any extra earnings made by your super stay in the fund, under the usual conditions ie until you meet a condition of release.
6. You gain if you can make concessional contributions before 30 June 2018, because:
a. a lower up front tax means you have a higher amount available to invest
b. you get a guaranteed rate of return in FHSSs
c. you get a lower tax bill in any case, as the new legislation lets you claim a tax deduction for your personal contributions ,up to the pre tax cap of $25,000 /year.
(see Viva blog for more details )
7. Limits to FHSSS withdrawals
· You can only apply to withdraw funds once under FHSSS
· You have 12 months from the withdrawal date to sign a contract to buy or build a home
· A houseboat or vacant land or a motor home don’t qualify as residential premises
· You have to genuinely intend to live in the property
· If you don’t go ahead with the purchase, you can return funds to your super or pay a flat 20% tax penalty
· However, the FHSSS withdrawal amount doesn’t count in calculating :
o any HECS /HELP repayment
o social security entitlements like family tax and child care benefits.
8. How about tax?
· Salary sacrifice, employer and voluntary contributions are taxed at 15%.
· FHSSS withdrawal amounts are taxed depending on what you put in:
o There is nil tax on your contribution from savings (it’s likely you’ve already been taxed!)
o Personal /salary sacrifice and deemed earnings are taxed at your marginal rate less 30% non-refundable tax offset. For example, if your marginal tax rate is 39% (including the Medicare levy) you will pay 9% tax on withdrawn funds.
9. Is it worth it?
The government’s FHSSS could boost savings towards a deposit by about 25% compared with standard savings. Check out the on-line estimator to see understand how FHSSS works.
Before you make any additional contributions to super, we recommend you contact us to discuss whether any extra personal contributions make sense in your particular case.
It makes absolute sense to get your money working harder for you!
Further reading: See MoneySmart for more information .
Also the FHSSS has now been updated to include information about the financial hardship provisions (as of 1 May 2018).