Superannuation savings for First Home Buyers
Wednesday 01 May 19
First home buyers will be allowed to salary sacrifice up to $15,000 per year until they reach a total of $30,000 of contributions. That money along with a ‘deemed’ investment return can then be drawn from super and used for the purchase of their first home. When it is drawn it will be considered taxable income, but a 30% tax rebate will be provided. This provision was made in the 2017 federal budget.
First home implications
Macquarie Bank gives us the following example:
Michelle earns $60,000 a year and wants to buy her first home. Using salary sacrifice, she annually directs $10,000 of pre-tax income into her superannuation account, increasing her balance by $8,500 after the contributions tax has been paid by her fund. After three years, she is able to withdraw $27,380 of contributions and deemed earnings on those contributions. Her withdrawal is taxed at her marginal rate (including Medicare levy) less a 30 per cent offset. After paying $1,620 of withdrawal tax she has $25,760 that she can use for her deposit. Michelle has saved around $6,240 more for a deposit than if she had saved in a standard deposit account.
Michelle’s partner Nick has the same income and also salary sacrifices $10,000 annually to superannuation over the same period. Together they have $51,520 that they can put towards a deposit, $12,480 more than if they had saved in a standard deposit account.
First home added benefits
- With a couple both doing this, the $50,000 plus coming from it is the sort of deposit that should get them into an entry level home in many areas.
- By using superannuation for these savings, they cannot use them for anything else. That will help them to avoid spending it on other things that seem to be important at the time.
- It’s OK to have a longer-term plan for the first home. It doesn’t have to be 2 years, it’s just that the $30,000 maximum needs to be spread over two tax years. If it takes you longer than that, it’s OK. Even if a future government changes the scheme, it’s likely that you would still be allowed to access the funds according to the provisions of the original scheme.
- When you draw the money from super it doesn’t count towards HECS, HELP, Family Tax Benefit or Child Care Benefit calculations.
First home cautions
- The money set aside this way is not available to meet other pressing needs. You have to be in a very desperate, ongoing crisis to be able to access your superannuation for living needs.
- If you don’t use the money for a home purchase, it is locked away until retirement
- One concern that we do have is the possibility of a single person planning to buy their first home this way, but they end up marrying a person who has already owned a home. They would then not qualify for the First Homeowners Grant, and depending on the details of the legislation, they might not be allowed to draw the funds out of super for the purchase. We would hope that they allow for this situation in the legislation, but if you are in that potential situation, double check before taking that approach.