Buying your first home is a milestone in anyone’s life. However, with housing prices, saving a large enough deposit can seem unmanageable. This is why in the 2017 Budget the Government announced a scheme to help first home buyers boost their deposit savings through superannuation.
How will the Scheme work?
From 1 July 2017 first home buyers can make voluntary contributions of up to $15,000 per year and $30,000 in total into your super. The contributions can be made through a salary sacrifice arrangement or if you are a sole trader, a personal contribution for which you claim a deduction. Voluntary contributions must still be made within existing superannuation caps – $25,000 for concessional contributions in 2017/18 (i.e. Contributions from super guarantee and salary sacrifice contributions). From 1 July 2018 you will then be allowed to withdraw the contributions, along with deemed earnings, to use on a first home deposit.
Where does the boost in savings come from?
The contributions are effectively pre-tax income. However, when the contributions hit your super fund they are taxed at 15%. The withdrawal of the contributions will be taxed at your marginal tax rate less 30% offset. This effectively means you will not pay any more than 15% tax on your income that is used for a deposit. Compare this with someone earning $60,000 and is in the 32.5% tax bracket. The savings they will put towards their deposit is taxed at 32.5%. Using the super scheme could result in a few extra thousand for a deposit.
Don’t contribute just yet?
Although you could have started contributing from 1 July 2017; the government have not yet legislated the scheme and it is unclear if it will pass through parliament. If it does not pass, those using the savers scheme might have their contributions held in super until retirement. However, if you don’t mind taking the risk, talk to your payroll to discuss salary sacrificing into super.
Author: Allan Edmunds