The First Home Super Scheme allows you to tax effectively save for the purchase of your first home by utilising voluntary contributions (ie salary sacrifice) plus allocated earnings that you can withdraw at a later stage to fund the deposit or purchase of your first home.
The benefit of using voluntary concessional contributions to save for the deposit is that they are taxed at 15% as opposed to your personal marginal tax rate, which is likely to be higher.
For example: Lisa earns $65,000 a year which means her marginal tax rate is approx. 34.5% including medicare levy. If she saves $5,000 outside super she pays 34.5 cents tax for every dollar, or $1,725. If she salary sacrificed the $5,000 to super she only pays 15% tax on the contribution. This means the $5,000 would attract $750 in tax, the difference being $975 by moving the funds into super.
What about tax on the way out? Good question. It is important to know that super withdrawals also attract tax. When you withdraw under the FHSS saving there a 30% tax offset. This means when Lisa withdraws her contributions she will be taxed at her marginal tax rate of 34.5% less a 30% tax offset. In total she will pay another 4.5% tax when she withdraws her savings plus any earnings.
You can withdraw up to $15,000 of your voluntary contributions in any one financial year and up to a total maximum of $30,000 across all years. The ATO has a formula to determine associated earnings – it is not the actual return you may have received from your investments. Eligibility is per individual so if you are part of a couple and both eligible you could access $60,000.
To be eligible you need to be 18 years or older, not have owned property in Australia previously and intend to live in the property straight away or for at least 6 months of the first 12 months you own the property.
It is important to note that if a purchase doesn’t happen, the funds have to be contributed back into super. The ATO needs to be informed regardless of whether the funds are used for a purchase or not.
In a nutshell, this can be a tax effective way to boost your savings for a deposit, it helps establish a good savings discipline as the money cannot be withdrawn for any other purpose however you need to be aware that the process to access your money is much slower than your savings in the bank and takes a little more effort to administer. We are here to help so please get in touch if you wish to consider this strategy.
This information contained in this document has been provided as general advice only. The contents of this document have been prepared without taking account of your personal objectives, financial situation or needs. You should, before making any decision regarding any information, strategies or products mentioned in this document, consult with your GPS Wealth Ltd financial adviser to consider whether it is appropriate having regard to your own objectives, financial situation and needs