Does the revamped First Home Super Saver scheme go far enough?
It will come as no surprise to first-time buyers that home ownership has become a gladiator sport.
A new report by UNSW puts it in sharp focus. Since the mid-1990s house prices have raced well ahead of income growth, with home ownership levels among the under-35s halved since 1995.
Not all young adults can rely on the bank of mum and dad, which is presumably why the federal government used the budget to announce it would increase the First Home Super Saver scheme's releasable amount from $30,000 to $50,000.
Pending legislation, this higher amount will apply from July 1 next year. It means couples who combine their FHSS contributions will be able to access a more meaningful $100,00 from super instead of the $60,000 that currently applies.
Voluntary contributions made since the scheme's introduction on July 1, 2017, will count towards the total amount released. At the time, the prime minister, Scott Morrison, said the FHSS would "provide significant tax incentives for first home buyers to accelerate the rate at which they save".
How it works
Through the scheme you can contribute up to $15,000 a year to super. However, you need to be careful not to exceed the normal contribution caps that apply, which include your employer's compulsory super.
For concessional (before-tax) contributions, the cap is $27,500 a year and for non-concessional (after-tax) contributions, it's $110,000. Compulsory super, paid by your employer, cannot be included in your FHSS savings.
If you make concessional contributions (salary sacrifice) it could potentially lower your taxable income.
The federal government estimates the FHSS scheme can boost your savings by at least 30% compared with savings in a standard deposit account.
Concessional contributions are taxed at 15% going into super. They are also taxed on the way out once you withdraw the savings to buy your first home. The withdrawal amount, plus earnings, is taxed at the individual's marginal tax rate, plus Medicare levy, less a 30% offset.
FHSS savings earn a deemed rate of interest set by the government (currently 3.04%) rather than the full investment returns made by your super fund.
While lower than the typical 8% return on balanced funds, it's higher than interest rates on bank savings accounts. And, critically, it isn't affected by falling markets.
The advantage of using the FHSS scheme is the savings you make through super's low-tax environment, says tax specialist Adrian Raftery.
"For everyone earning over $45,000 it will be particularly worthwhile," he says. "For the $45,000 to $120,000 tax brackets, they're effectively taxed at 4.5%."
Raftery says the increase in the FHSS limit to $50,000, or $100,00 combined as a couple, makes the scheme a more attractive proposition, but at the same time he worries it might further fuel property prices.
Once you are ready to withdraw your savings you need to contact the tax office through your myGov account. It will determine how much can be released and let your fund know. It can take up to 25 business days for the money to come through.
Colin Lewis, head of strategic advice at Fitzpatricks Private Wealth, says the scheme was previously too restrictive but has been improved.
"Initially, when the government put the scheme in place, it wasn't very attractive. You had to arrange to pull the money out of your super fund before you went to the auction.
"You couldn't pull it out after you had bought something, which meant that if you went along to an auction to buy something you couldn't then turn around and pull the money out of super. You had to pull it out before, and then you only had 12 months to buy something.
"So the early system was pretty unpalatable for a lot of people, but they have now addressed that.
"But the thing is, you don't put money into super if you can't get it out. If you weren't buying a home you wouldn't be doing it. Nobody is going to lock their money away for 30 years."
Apart from being clear about your goals and intentions, Lewis says it's critical to first check with your super fund that it participates in the scheme.
"Before making a super contribution, check with your fund that your money will be released under the FHSS when you need it. The last thing you want is to have a shortfall in your home deposit because your money cannot be accessed until retirement."
It's important to be realistic about what to expect from the scheme too, he says.
"In dollar terms, the benefit you derive from using the FHSS is not big, but it's better than having money in the bank earning next to nothing."
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