A big hurdle for First Home Buyers that has prevented them from entering the market has been helped by the Federal Governments introduction of the First Home Super Scheme (FHSS)
WHAT IS THE FHSS SCHEME?
The FHSS scheme allows first home buyers to make additional voluntary contributions to their super, through pre-tax salary sacrificing or post-tax contributions, up to $15,000 per year, capped at $30,000. These are additional contributions above the compulsory 9.5% employer superannuation guarantee.
Even with this scheme in place, still the normal superannuation contributions limits apply, which limits the amount of pre-tax contributions to $25,000.
SO, WHAT IS THE BENEFIT?
Where one of the benefits of the FHSS Scheme comes to play is the tax savings from those additional pre-tax contributions being made. This is because those funds entering the super account is taxed at 15%.
The benefit arises when comparing making pre-tax salary sacrifices, compared to your normal take home pay contributions.
To better understand the benefits, we will use the example published in ‘The Sydney Morning Herald’. Basically, it went along the lines of comparing a full-time employee on a wage of $70,000 who was to salary sacrifice $500 pre-tax dollars, instead of keeping that money as normal take home pay. Where does the benefit lie in this example?
The article further went on to explain that the benefit arose when the $500 contribution arrived in the Superfund, as it is taxed at 15%. So, in theory, the $500-dollar contribution translates to $425 hitting your Superfund once tax is removed.
Comparing this to the $500 that would have been normal take home pay, there would have only been $350 in your pocket, after tax. So, having $425 actually entering your super is definitely a big benefit.
HOW DO THESE FUNDS GET RELEASED?
To withdraw the voluntary super contributions and earnings you have made under the FHSS, you need to first request a determination from the Commissioner of Taxation.
The Commissioner will then tell you; your maximum FHSS release amount, associated earnings, and tax that needs to be withheld.
This request is usually processed within 12 business days. A key point to remember is that once you have requested a release, you can’t request another one.
Before you request the release of your savings you should check that you have made all of the voluntary FHSS contributions you want to make. As well as, check and agree with the amounts shown
DOES THE SUPER SAVER SCHEME APPLY TO EVERYONE?
The Australian Taxation Office states that to qualify for this scheme you must;
- Be over 18 years old
- Not have previously owned property in Australia (or suffered from financial hardship as specified by regulations).
- Not have previously released any FHSS funds
- Not use the fund to purchase any of the following types of properties;
- A premise not capable of being occupied as a residence
- A Houseboat
- A Motor Home
- Vacant Land
- Must live or intend to live in the premises you are buying as soon a practicably possible
- Lastly, you must intend to live in the property for at least six months of the first 12 months you own it, after it is practical to move in.
So, in summary, the new First Home Super Saver Scheme is a definite benefit that has been introduced to help First Home Buyers battle the rising house prices.
To get a better understanding of the potential benefit of the Governments First Home Super Saver Scheme for your particular situation, please click the link below to use the interactive scenario tool.