A common theme in the Australian public discourse is the capacity to use your Superannuation to help first home buyers into the property market. While established Superannuation balances are largely stashed away and can’t be used towards purchasing a property to live in, the First Home Super Saver Scheme (FHSSS) was established in 2017 to provide some assistance for first home buyers savings towards their first deposit.
The FHSSS is a federal program that has re-entered the conversation in recent weeks, thanks to an expansion from the most recent Federal Budget that allows for a larger savings cap inside the scheme – an increase from $30,000 to $50,000 effective July 1st, 2021. Approximately 18,000 applicants have used the scheme, with the number expected to grow as more Australian’s become aware of the scheme, and are given the requisite time required to build their FHSSS balance substantially enough to cover a home deposit.
The most important aspect of the FHSSS to understand is that you can only use voluntary super contributions – additional Super contributions over & above the mandatory contributions from your employer. You can’t use the FHSSS to tap into your existing Superannuation balance. There are potential tax benefits to saving for a home this way – additional contributions to your Superannuation over & above your employer’s contributions are deducted from your taxable income up to the concessional cap. From July 1 this year, the concessional cap on super contributions will increase to $27,500 per year.
Also, from July 1 this year, 10 percent of your salary must go into superannuation under the Superannuation Guarantee Charge. So to make it easy, let’s say you had a total salary of $150,000 – then $15,000 goes into super under the SGC as paid by your employer. Now, remember the concessional contribution “cap” is $27,500 – so you could voluntarily contribute an extra $12,500 ($27,500 minus $15,000) to the scheme per annum – if you can afford it. The money is kept in a special account where you are not taxed at your income tax rate (marginal rate) but at the super rate, which is 15 percent. It is this gap that allows you to accelerate your savings towards a first home.
There’s some general confusion around the scheme, which is probably understandable given the explanation above. If you are in a lower tax bracket, the potential tax savings are less significant than for those in a higher tax bracket, and if you are unsure how the scheme may help you a discussion with your accountant and employer may be a important place to start.
A major benefit of the scheme appeals more to the psychological challenges of saving for a deposit: it’s much harder to access your FHSSS savings on a whim than it is any savings kept in an online bank account, which can be freely accessed at any time.
Contributor: Grant Jacques – Director Jacques Financial Group
