Did you know that you can use the benefits of saving in your super to help buy your first home sooner? Under the First Home Super Saver (FHSS) scheme, you may now be able to save more money to put towards purchasing your first home by using the tax advantages around super.
Since 1 July 2017, if you are eligible, the FHSS scheme has allowed you to make voluntary concessional (before-tax) and non-concessional (after-tax) contributions into your super fund which can be accessed from 1 July 2018 and used towards buying your first home.
Less tax, more savings
By putting your before tax money into super and not after tax money in a savings account, you can make the most of the 15% superannuation tax rate which in many cases may be less than your personal income tax rate, and could leave you with more money to put towards buying your first home.
Know your limits
Under the FHSS rules, you can apply for the release of a maximum of $15,000 of your voluntary contributions from any one financial year included in your eligible contributions, up to a total of $30,000 contributions across all years. Any associated earnings1 that relate to these contributions are also available to be withdrawn.
Couples can combine forces and access a total of $60,000 of their eligible contributions, plus associated earnings.
Saving in your super
Please be aware that some employers may not offer salary sacrifice arrangements to their employees.
Before you start saving the Australian Taxation Office (ATO) also recommends that you should:
- Make sure you are eligible for the FHSSS
- check that your nominated super fund/s will release the money
- ask your fund about any fees, charges and insurance implications that may apply
- be aware that if you receive FHSS amounts, it will affect your tax for the year in which you make the request to release . You will receive a payment summary, and you will need to include both the assessable and tax-withheld amounts in your tax return.
If you have previously owned a home and would like to be considered to be eligible under the financial hardship provision then you should ask the ATO to determine if these provisions apply to you before you start saving.
What are eligible FHSS contributions?
You can make the following existing types of contributions towards the FHSS scheme:
- voluntary concessional contributions – including salary sacrifice amounts or personal contributions for which a tax deduction has been claimed. These are taxed at 15% in most cases instead of your marginal tax rate
- voluntary personal after tax contributions where no tax deduction has been claimed. These have already been taxed at your marginal tax rate and no further tax applies on contribution.
Also, be aware that there’s no change to the amount of money you can contribute to your super – the existing superannuation contribution caps still apply. Under the FHSS scheme, your contributions still count towards your contribution caps for the year in which they were originally made.
How the FHSS scheme can help you
* Note: In some cases making salary sacrifice contributions may reduce the compulsory Super Guarantee contributions your employer makes. So, prior to entering into a salary sacrifice agreement, you should clarify the terms of your employment to ensure it won’t impact on the level of Super Guarantee contributions being paid.
1The ATO states that associated earnings are calculated on these contributions using a deemed rate of return, based on the 90-day Bank Bill rate plus three percentage points (shortfall interest charge rate).
2The government's online FHSS estimator assumes that contributions are made from 2017-18, and accounts for announced future changes in the rates of the taxes modelled. Taxable income and salary sacrifice amounts are held constant over time. When calculating the amount available for withdrawal, the estimator assumes that contributions are made each year until reaching the $30,000 limit on pre-tax contributions that can be subsequently withdrawn under the scheme. The interest rate paid on savings in a deposit account is assumed to be fixed at 2% pa. (this reflects average retail deposit rates in April 2017). The deemed earnings rate applied to savings in superannuation is fixed at the shortfall interest charge (SIC) rate for April to June 2017 (4.78% pa). For more information, visit http://budget.gov.au/2017-18/content/glossies/factsheets/html/HA_14.htm