Save tax, boost savings, buy a home
There's this thing called the ‘First Home Super Saver Scheme' (FHSSS for short) which could benefit the average Aussie in scraping together a better deposit sooner than they think. One of the major benefits can be determined by how much income tax you're paying; so, if you have an assessable income of more than $37,000 per annum, you would benefit most from the tax savings.
With that said, even low income earners can benefit from the scheme, just not as much from the tax savings.
THE INSIDE SCOOP
Legislation passed late last year that enables eligible first home buyers to save for a home deposit in the concessionally taxed superannuation system (basically, super generally is taxed at a lower rate than income).
In short, you can make deposits into your superannuation fund for the purpose of buying a home; in doing so, you could pay less tax, increase the amount that’s being saved, and make a pretty hefty difference to the end deposit when compared to the traditional way of saving: saving your take-home pay, popping it in a savings account, and waiting until you have enough to buy a home. Let's slip away from the traditional method for a second and see if there's another way you can save for your deposit.
Let’s get into some of the nitty gritty details. Grab some popcorn while I run you through some of the things you need to know about how you can save tax, boost your savings for a deposit on a home, and buy your own place sooner (but you should get personal financial advice from a licensed financial adviser before you do anything about it).
KEY DATES
Contributions can be made under the scheme from 1 July 2017 and withdrawn from 1 July 2018.
WHAT AND HOW MUCH CAN YOU CONTRIBUTE?
Only voluntary contributions you make to super will count towards your FHSSS balance.
Voluntary contributions include personal, salary sacrifice and additional employer contributions, but not compulsory employer contributions (such as Superannuation Guarantee – the super your employer MUST pay AT LEAST every 3 months – which is 9.5% or more of your Ordinary Time Earnings) and certain other amounts.
Voluntary contributions are limited to $15,000 per year and a total of $30,000. These contributions also count towards the existing contribution caps. Be mindful how much you contribute each year so you don’t exceed the cap.
HOW MUCH AND WHEN CAN YOU WITHDRAW?
Withdrawals are capped at $30,000 plus associated earnings. The Australian Taxation Office (ATO) will calculate the associated earnings based on a formula, not the actual earning rate. That basically means the ATO will determine how much extra you earned, regardless of how much your super went up or down based on the performance of the investments. The ATO will also determine the amount that can be released after allowing for applicable taxes.
You can withdraw from the scheme before you have found a place to buy, but you’ll need to buy within 12 months of withdrawing the money from your super fund. If not, the ATO may grant a 12-month extension.
WHO CAN PARTICIPATE?
To participate in the scheme, you generally need to be aged 18 or over, have not used the scheme before and have never owned real property in Australia. You may still be eligible if you plan to purchase a home with a partner who doesn’t meet the criteria. This means, even if you’ve owned real property before, if you are buying a home with a partner who has not owned real property before, they may still utilise the scheme for the purchase.
WHAT CAN YOU BUY?
You must buy a ‘residential premises’ with any amount withdrawn using the FHSSS. This includes vacant land if you’re planning to build. The premises must become your home (not an investment property) and you need to occupy it for at least 6 months after you buy or build it.
WHAT HAPPENS IF YOU DON'T BUY?
If you don’t buy within the required timeframe, you can contribute the released amount back into super or keep the money and pay tax equal to 20% of the assessable amount.
GRANT, GIVE ME AN EXAMPLE OF HOW IT WORKS!
Our good friend, Darryl, earns $60,000 a year and wants to buy his first home.
Using salary sacrifice, he annually directs $10,000 of pre-tax income into his superannuation account, increasing his balance by $8,500 after the contributions tax (the 15% tax that super pays on the pre-tax money that goes in – like your employer contributions and salary sacrifice contributions) has been paid by her fund. After three years, he’s able to withdraw $27,380 of contributions and deemed earnings on those contributions. His withdrawal is taxed at his marginal rate (including Medicare levy) less a 30% tax offset. After paying $1,620 of withdrawal tax, he has $25,760 that he can use for his deposit. Darryl has saved around $6,240 more for a deposit than if he had saved in a standard deposit account.
Darryl's partner, Sal, has the same income, and also salary sacrifices $10,000 annually to superannuation over the same period. Together they have $51,520 that they can put towards a deposit – $12,480 more than if they had saved in a standard deposit account without utilizing the scheme.
In other words, if Darryl and Sal put it in the ‘too hard’ basket and kept doing the same old thing, they would’ve ended up with almost 25% less in their deposit; they would’ve had around $39,040 instead of $51,520 for the deposit on a home. THAT’S A PRETTY BIG DEAL!! Well done, Darryl and Sal! Way to hussle! Now they've increased their deposit and can get into a home sooner and enjoy the serenity!
So, here’s the question: Would you rather work more to save another $6,240 (that’s about $9,500 before tax, if your income is between $37k - $87k; another way of looking at it is 9.5 weeks of full-time work if you're on $1k per week / $52k p/a)? Or get expert advice and make your money work more for you?
One of the big differences between the wealthy and the average person is, the way they use their money. One works to earn more money, the other puts their money (no matter how large or little the sum may be) to work and earn more money.
COULD I BENEFIT FROM THE FHSSS?
If you want help to find out if you could benefit from the FHSSS, and want to set up an ideal strategy to take advantage of the scheme, I can help.
Making smarter choices with your money is a wiser course of action than trying to work harder and longer to earn more. If you keep doing what you've done, you'll keep getting what you've got. I want to show you an easier way.
If you seriously want to make a difference to your ability to get a deposit quicker, it's time to get serious and do something about it.
It doesn’t matter where you are in Australia, if you’re keen for a chat to suss out if the FHSSS can work for you, or have any questions about it, just flick me an email, send me a text, connect with me on Facebook, or give me a call: https://www.inspiredfinancialplanners.com.au/contact/
The first meeting is on me, at no cost to you. I’ve got your back.
Product Designer | UX Strategy | Mentor @ADPList
3 年With the fees involved utilising and withdrawing money mentioned in the example, I see that 10,000 each year would have been better in the bank - getting to 30k plus interest accrued…? It seems like it was a worse decision putting in the super, or am I missing something here?