As same sex marriage was finally being passed by the House of Reps, another long-predicted bill also passed in both Houses in early December. The clumsily named First Home Super Savers Scheme (FHSSS) has been approved. But what does this mean for first homebuyers and is it all it has cracked up to be?
What is the FHSSS?
From 1 July 2018, first home buyers can dip into their super to withdraw an amount of voluntary superannuation contributions made since 1 July 2017, along with a ‘deemed rate of earnings’ – aka interest – to put towards their first home.
Under the rules, the maximum amount of contributions that can be made in a particular financial year is $15,000, with a maximum of $30,000 (total) in total contributions across all years. Couples can combine forces and through super can contribute up to $60,000 combined to their bricks and mortar.
Treasurer ScoMo said this can help accelerate savings by at least 30%.
The benefit of the money being in super and not in a savings account is you can make the most of the 15% superannuation tax rate (typically far less than a personal income tax rate). So if you’re paying less tax, you end up with more for a deposit on your first home. Got it?
The government describe this as a ‘significant leg up towards saving their deposit’, but is it all that and will it help young Aussies get their foot in the crowded housing market?
Contributing to superannuation is a big pro if you want to pay less tax, regardless of whether you’re using it for a deposit or otherwise. Read more about this here.
Let’s look at a practical example. If you are on a $65,000 annual salary, and you contribute $10,000 into superannuation in one year, your take home pay would only be reduced by $6,400 (effectively you get $3,600 tax free!). Yippie! At this rate, after three years’ of savings you’ll have $25,833 available for deposit under the FHSSS, which is $6,314 more than if you’d put the money in a savings / deposit account and been taxed at your personal income tax rate.
So there is value in this! Pay less tax = get more money.
Will this be the difference between affording and not affording your own home?
You’d want a decent deposit to back you outside of super, because $30K isn’t likely to get you a deposit in many locations in Australia, particularly not Sydney and Melbourne in the current climate.
If you’re a couple, both on $65,000 annually, then it works out to be an extra $12,000 over three years, so that’s nothing to sneeze at
If you’re looking to purchase your first place in the next couple of years, it would be worth considering this opportunity. However if you’re looking to purchase in the longer term – say five to ten years – we’re on the fence as to whether this is a good idea. In a country that saw five prime ministers in five years, it would take a brave person to bet that this legislature will be around a decade from now.
To understand how this can help you, the government have put together a little calculator which you can find here.