I’ve been getting a lot of questions recently about the first home super savers scheme, so wanted to put this together to outline the rules and things you need to know. WARNING: This is some dry content and I haven’t prettied it up PLEASE DON’T JUDGE ME!!!
So the government has recently passed this scheme into law so anyone will be able to access it from right now. I’ve included the rules below and some of the things you should be thinking about.
First Home Super Saver Scheme
The First Home Super Saver Scheme FHSSS allows eligible first home savers to withdraw from super their ‘releasable amount’. This consists of eligible non-concessional contributions, 85 per cent of voluntary concessional contributions made from 1 July 2017 and associated earnings.
First home savers will be able to make their first withdrawal from 1 July 2018.
Who is eligible?
Eligibility for the FHSSS is extended to savers who have never had an interest in a property including a home or investment property. In addition they must be 18 or over and have not previously withdrawn an amount under the scheme.
What are voluntary contributions?
Voluntary contributions covered by the scheme include:
- Non-mandated employer contributions, such as:
- Salary sacrifice contributions
- Voluntary employer contributions
- Member contribution made by the member, such as:
- Personal deductible contributions
- Non-concessional contributions made by the member
Contributions which are not eligible include:
- Mandatory employer contributions (eg super guarantee contributions).
- Spouse contributions
- Government co-contributions
- Contributions to defined benefits funds and constitutionally protected funds
How does it work?
The ATO will calculate the amount of earnings on the contributions and include that in the total in the releasable amount. The calculated earnings rate is the Shortfall Interest Charge (SIC) rate which is the 90-day bank bill rate plus 3 per cent. The SIC is currently 4.70%.
The maximum amount of contributions made in a particular financial year that may be released is $15,000 with a maximum of $30,000 (total) per eligible individual. This means a couple saving for a first home could contribute up to $60,000 combined.
All associated earnings plus any voluntary concessional contributions in a withdrawal will be taxed at the individual’s marginal tax rate with a 30 per cent non-refundable tax offset. Any non-concessional contributions will not be taxed but again the associated earnings on these contributions will be taxed.
The government have released a First Home Super Saver Scheme – Estimator which indicates the potential benefit of the scheme. In summary some of the benefits can include:
- Reduction in personal tax – investment earnings will be taxed within the super environment and not in your client’s personal name. In additional voluntary contributions can in the form of personal deductible contributions and salary sacrifice which will reduce your client’s taxable income.
- Better budgeting – entering a salary sacrifice arrangement can help your client’s budget via ‘forced savings’. In addition the associated earnings formula provides a relatively stable return which is higher than what can be achieved on a term deposit.
If you put extra money into your super fund, it will most likely be invested in growth assets like shares which increase and decrease in value over time. If you put money into your fund with a plan to take it out a few years from now and the markets go down, your fund balance will also decrease. If you want or need to take the money out, your money could be worth less meaning your deposit will reduce or you will need to take more money out of your super fund.
If your income increases during the time you are contributing the tax benefit of this scheme will be reduced. For example, if you’re currently earning $85k, your marginal tax rate is 32.5%, meaning the tax benefit of making a contribution to super is 32.5% – 15% = 17.5%. But if when you take the money out of your super in a few years your income is $180k your marginal tax rate will be 45%, and the tax you pay is 45%-30% = 15%.
The overall tax benefit of participating in the scheme is the tax saving when making the contribution less the tax paid at the back end (17.5%-15%=2.5%). Not a huge benefit for the risk involved.
How to decide if this is right for you
This scheme is a step in the right direction by the government. They clearly understand it’s getting more and more difficult for first home buyers to get into the market. But it’s not as great as it sounds on the surface. This scheme seems fairly simple, but there are some things that can impact whether it’s going to actually be good for you, and some risks that you should be aware of before going down this path. There are also some ways you can take advantage of the scheme if you’re in the right position. I suggest talking to someone who knows the rules and what to look for before jumping in.
Disclaimer: The information in this article is general in nature and does not take into account your situation or needs. Please don’t rush out and do anything crazy! You should think about whether this (or any!) strategy is right for you before acting on it. I’m a little biased here but you should seek advice from a professional before making any big decisions.