Being smart with super to save for your first home
Australians can now save for a deposit toward their first home under the federal government’s First Home Super Saver Scheme (‘Scheme’).
The Scheme - which came into effect on 1 July 2017 - has been designed to allow eligible first home buyers to build up savings within their super account, then make a withdrawal as a deposit for their first home.
What are the advantages of the Scheme?
A key advantage of the Scheme is that it could be more tax-advantageous to grow savings through super rather than via a standard deposit account. It can help first home buyers save for their deposit faster, because of concessional tax treatment given to contributions made into super. As well as a tax-effective savings and withdrawal scheme, the Scheme is a disciplined way of saving for a first home deposit. And if eligible contributions aren’t required for a home deposit, the amount will be retained in your super account to build your retirement savings.
Who is eligible?
- You need to be 18 years or older to participate in the Scheme.
- You haven’t owned property in Australia before^.
- You haven’t previously had an amount released from super under the Scheme.
- You need to either live or intend to live in the property you are buying as soon as practicable and for at least 6 months of the first 12 months you own it.
What contributions can be made?
- Eligible contributions towards the Scheme must be voluntary. These can either be concessional (before-tax) or non-concessional (after-tax) contributions.
- You can apply to have a maximum of $15,000 of your voluntary contributions from any one year included in your eligible contributions to be released under the scheme, up to a total of $30,000 contributions across all years. You will also receive earnings that relate to those contributions. (Note: you’ll need to make sure your contributions don’t exceed the annual contribution caps for superannuation).
- You can choose to salary sacrifice your contributions or make Personal deductible contributions. These before-tax contributions allow you to reduce your taxable income and are both subject to 15%* tax instead of your marginal tax rate**.
- You can also make personal super contributions from your after tax salary, which are not taxed again inside super.
How do I withdraw from my super under this scheme?
- When you’re ready to purchase a home, you’ll need to request the ATO to advise you on how much you have available to withdraw. You can then submit an application to the ATO, asking for the funds to be released from your super.
- Your maximum release amount will be the total of your eligible contributions, taking into account the yearly and total limits, and associated earnings. Your concessional contributions and associated earnings that are withdrawn will be taxed at your marginal rate with a 30% offset.
- Once you withdraw your funds, you have 12 months to purchase your home (extensions up to 24 months are possible but by exception only).
- If you’re unable to purchase or change your mind - you’ll need to return the funds to your super account – or pay tax equal to 20% of the concessional amount released.
Couples, relatives or friends can combine their Scheme savings into a single deposit.
To learn more about the Scheme, you can read about it in full detail on the ATO website here.
There is a handy calculator here that can illustrate the advantages of saving via this scheme.
^ A financial hardship exception may be possible if you have previously owned property. Additional criteria apply in this instance, so please refer to the full eligibility criteria here
*If your adjusted taxable income (including before-tax contributions) exceeds $250,000 per year, your before-tax contributions above this threshold are generally taxed at an effective rate of 30%.
** Personal Deductible Contributions are only subject to 15% tax when a Notice of Intent to Claim form has been submitted to your super fund and claimed via a tax deduction. This advice has been prepared without taking into account your objectives, financial situation or needs. You should therefore consider the appropriateness of the advice in light of your individual circumstances before acting on the advice. You should also obtain and consider a copy of the relevant Product Disclosure Statement available at www.vicsuper.com.au before making any decisions.
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