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A Super way to buy your First Home – without missing out on your avo on toast

Are you lost in the jargon about whether you should tap into your super to purchase your first home? We have broken down the facts below.

 The facts

  • First home buyers can choose to make voluntary ‘before tax’ and ‘after tax’ super contributions over and above the 9.5% compulsory contribution to save for a deposit for a first home.
  • From 1 July 2018, you can tap into these voluntary contributions, along with any associated earnings.
  • You can withdraw up to $15,000 a year and up to $30,000 in total. Couples will be able to access the scheme and combine their savings to make a single deposit (up to $60,000).
  • You can withdraw, taking into account the yearly and total limits, 100% of your ‘after tax’ voluntary contributions and 85% of your ‘before tax’ voluntary contributions – essentially your savings will be taxed at 15% instead of usual income tax rate.

Note: The ATO must have released a First Home Super Saver (FHSS) amount to you before you sign a contract to purchase or construct residential premises or you may be liable to pay FHSS tax.

 The process

  • You can check your balance with your super fund at any time to see how much you have saved.
  • When you are ready, you can apply to the ATO for a ‘FHSS determination’ and ‘release’ online using your myGov account linked to the ATO.
  • Once you receive the determination, you can decide to apply for a release of your amount if you are ready to purchase a home. You can request a determination multiple times. You can only apply for a release once.
  • Once you satisfied you have made all of the voluntary contributions you wish to make and you are happy with the amount shown in the determination, you can request a release of the amount shown in the determination.
  • It will take approximately 25 working days for your super fund to release the money and for the ATO to pay it to you.
  • The ATO will provide you with a payment summary for your tax return.
  • Once your savings have been released, you have up to 12 months to sign a contract to purchase or construct a home.
  • If you do not sign a contract to purchase or construct a home within 12 months, you can apply for an extension of time for a further 12 months, recontribute an amount into your super fund, or keep the released amount and be subject to a flat tax equal to 20% of your assessable FHSS released amount.
  • You must notify the ATO if you sign a contract to purchase or construct a home, or recontribute the amount into your super fund or you will be subject to the FHSS tax.

Case study

Jase and Tara earn $70,000 each per annum and want to buy their first property.

Using salary sacrifice, they each contribute approximately $17,500.00 pre-tax per annum ($12,000 after tax equivalent) into their super funds. After two years of savings, they will be able to withdraw the maximum amount of $30,000.00 each, or $60,000.00 combined.

By saving the money in their super funds they have each saved approximately $6,000 over the two years, or $12,000.00 combined more than if they would have saved for a deposit in a traditional bank account.

 Summary

The financial gain from saving through the scheme is by no means earth shattering. It will also mean that you are dipping into your funds put aside for your retirement. The scheme does however enable savers to pump extra money into super at an attractive tax rate which will help them to build a deposit more quickly and enter the property market sooner. It also provides first home buyers with a savings outlet, removing the temptation to spend money elsewhere.

The scheme is also separate and does not affect your entitlements to other state government concessions such as the first home owners grant.

For further information, please see:

https://www.ato.gov.au/Individuals/Super/

Disclaimer: We recommend you speak to your accountant or financial advisor to discuss your particular situation. These figures are based on 2018-19 individual marginal tax rates and are approximate only. The case study does not take into account gains that could be generated on the additional super account balance, nor any interests that would be accrued in a standard bank account.

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