How investing in super can help you save for your first home
Thinking about owning your own home?
The Government’s new First Home Super Saver (FHSS) Scheme could help you secure the deposit – by saving into your super.
From 1 July 2018, the Scheme will let you withdraw certain contributions that you’ve put into super since 1 July 2017 for a deposit on your first home.
What are some of the rules?
These contributions can be those you made from your before-tax pay (think salary sacrifice) and voluntary contributions you made from your take-home pay. The most that can be released to you is $15,000 for any one financial year and $30,000 in total across all years – with any associated earnings on top of that.
To be eligible for the FHSS Scheme, you must:
- be 18 years or older to request a release of FHSS amounts
- have not previously owned property in Australia (or deemed by the Commissioner of Taxation as suffering financial hardship)
- have not previously released FHSS funds
- intend to live in the premises you are buying as soon as possible (remember: the FHSS does not apply to investment property, houseboats or motor homes)
- intend to live in the premises for at least 6 months of the first 12 months you own it.
What’s the benefit of using my super when I can just use an ordinary bank account?
It may be more tax-effective to use super to help you save for a deposit.
For example, if you elect to make before-tax contributions, under the Scheme you’ll be taxed at 15% rather than at marginal tax rates which, depending on your income, could be up to 47% in 2017–18. Any investment earnings on those contributions will also be taxed at just 15%, and when the funds are released to you they’ll be taxed at your marginal tax rate – but with a 30% tax offset.
You can use the Government’s FHSS Scheme online estimator at to compare the outcomes of saving for a first home using before-tax contributions versus using a standard bank deposit account. Here’s an example of what it could look like.
Source: www.budget.gov.au/estimator. Estimated FHSS savings if your total taxable income is $70,000 and you make an annual before-tax contribution of $10,000 over a 3-year period.
The FHSS Scheme interests me, so what now?
Super is known as being a tax-effective way to save for retirement and super funds try to encourage their members to save by helping them develop a contribution strategy to meet their goals.
The same is true when saving for your first home deposit within super. Whether or not you’ve made contributions to your super in the past, if you’re thinking about using the FHSS Scheme a contribution strategy can be useful and your super fund may be a good place to start.
Some super funds can give you this kind of advice at no additional cost.
It’s also important to remember that if you contribute too much to super you may have to pay additional tax. The Government has set limits on the total value of super contributions that you can make or receive. The cap for before-tax contributions is $25,000 and after-tax contributions is $100,000 for the 2017–2018 income year.
When you’re ready to withdraw your savings, you’ll need to apply to the Commission of Taxation for an “FHSS determination and a release of funds”. You can apply for this through the Australian Taxation Office (ATO) from 1 July 2018. The ATO will need some time to process your request so consider this when applying.
What you need to know once your savings are released
After your savings have been released you’ll be given 12 months to sign a contract to buy or build a home. If you don’t sign a contract within 12 months you can apply for another 12 month extension only.
If you don’t end up buying a home in this time then you can either re-contribute the savings back into super (must be equal to the release amount) or keep your savings and pay a tax penalty equal to 20% of the amount released from your super.
Next steps
Energy Super has a team of advisers that can help members develop a savings and contribution strategy at no additional cost. Contact us on 1300 436 374 or email us on info@energysuper.com.au.
The ATO has information on the FHSS Scheme at https://www.ato.gov.au/Individuals/Super/Super-housing-measures/First-Home-Super-Saver-Scheme/.
You’ll also find information in the Government’s FHSS Scheme Key Fact Sheet.