News & Updates
Is super the answer to housing affordability?
In a bid to tackle the challenges of housing affordability, the Government passed two pieces of legislation following the Federal Budget 2017-18:
- First Home Super Saver Scheme
- Downsizer Contributions
While these initiatives are not yet proven to be the key to improving housing affordability in Australia, they do offer options that did not exist before for two camps: first home buyers trying to enter the property market and retirees seeking to downsize and store their sale proceeds in a tax effective superannuation environment.
First Home Super Saver Scheme (FHSSS)
Following the Federal Budget 2017-18, the Government passed a bill which allowed Australians to use the concessionally taxed superannuation system, to save for their first home. The rule allows individuals to withdraw additional voluntary contributions of up to $30,000, plus earnings, to be counted towards the purchase of your first home, and by doing so, receive tax advantages.
The key benefits of the scheme include:
- You can salary sacrifice which means you are taxed at your marginal rate but at the superannuation concessional rate at 15% (Table 1)
- You can contribute concessional contributions which means you can obtain a tax deductions
- The earnings in the superannuation environment is 15% versus your marginal tax rate (Table 2), thus quickening your ability to meet your first home deposit
Table 1: Potential Tax Savings under FHSSS
|Salary||Income Tax Rate (incl. Medicare Levy)||Savings on $30,000 FHSSS contribution||Non-super after-tax savings|
|Contributions tax at 15%||Tax on withdrawal||After-tax savings|
|$37,001 – $87,000||34.5%||$4,500||$1,148||$24,352||$19,650|
|$87,001 – $180,000||39%||$4,500||$2,295||$23,205||$18,300|
|$180,001 and above||47%||$4,500||$4,335||$21,165||$15,900|
*Assuming salary of under $250,000
We have entered the first year (as of 1 July 2018) in which individuals are able to apply to release their voluntary contributions to support the purchase of their first home.
- In the first year, individuals are able to withdraw up to $15,000 and a total of $30,000 plus earnings can be released in subsequent years.
- Must be for first home buyers (or for individuals who have had to sell their property due to financial hardship)
- Existing concessional superannuation caps apply ($25,000)
- You can withdraw the earnings, however, this is at the deemed rate by the ATO
- May not be as suitable for low-income earners
- If you do not purchase a home, the money either remains preserved inside superannuation or you can withdraw it and at a 20% FHSSS tax, which would lead to you paying additional tax, then had you not commenced the scheme.
It is important to note, that this rule does not extend to accessing the compulsory employer contributions, and does not allow you to access your existing superannuation balances, the scheme applies exclusively to your own voluntary contributions.
Individuals aged 65 or older are now able to make super contributions of up to $300,000 from 1 July 2018 relating to the proceeds of the sale of their primary home without limitations of contribution rules. An individual and their spouse can contribute up to $300,000 even if only one person is the legal owner of the property.
These contributions known as ‘downsize contributions’ can be made without having to meet a ‘work test’ or ‘total super balance test’, and they do not count towards the contribution caps. This rule aims to:
- Incentivise retirees to downsize and take advantage of tax concessions in superannuation, and
- Free up property stock for younger families.
Contact us to find out more.
This advice is general and does not take into account your objectives, financial situation or needs. You should consider whether the advice is suitable for you and your personal circumstances.