Feel like reaching your savings goals and saving for a deposit is impossible. The property market seems forever out of reach? The federal government has listened to the needs of the Australian public, and they have introduced the scheme of using super to buy your first home.
Even if you have been squirrelling away your money for a first home loan deposit or have simply spent too many years renting, we’ll run through this scheme and how it is possible to help you get a foot in the property market sooner rather than later.
Table of Contents
Eligibility for the scheme
To be eligible you must:
- Be at least 18 years of age
- Have never owned property or vacant land in Australia, including investment properties
- Live in the property from 6 months of purchase and 12 months of settlement
- Not previously requested for you super to be released under the FHSS scheme
How does it work?
The scheme allows you to make extra contributions to your super. With these extra contributions plus the associated earnings, it can help to purchase your first home.
You can make voluntary contributions up to $15, 000 per financial year. The most you can withdraw through the scheme is $30, 000 (plus earnings). Couples are allowed to combine their savings together, with the ability to withdraw $60, 000 in total.
Abacus Finance Case Study
Sarah is looking to save towards a deposit and hopes to buy a house in 2 years. She contributes:
First-year: She voluntarily contributes $25,000 (only $15, 000 of that amounts goes towards the FHSS scheme).
Second-year: She further contributes $5, 000 (that $5, 000 goes towards the FHSS scheme). (Standard tax amount)
By the end of the second year, she can withdraw $20, 000 for her deposit, not the $30, 000 she has contributed in total. The reason being each year you can only deposit up to $15, 000 into the FHSS scheme.
Did you know?
Benefits and disadvantages of FHSSS
Through using your super, buying your first home is a good way to accelerate your savings by paying less tax, so you can buy a house sooner. The benefits of using this scheme include the following:
1. Double your savings
As part of a couple (Who are both eligible for the scheme), you could double your maximum savings limit from $30, 000 to $60, 000.
2. Lower your taxable income
By agreeing to a salary sacrifice arrangement with your employer, you could make concessional contributions. It will still be taxed, however, the rate is generally lower than the normal rate normally paid on taxable income.
3. Flexible time frame
Currently, there is no time limit on when you need to apply to release your funds. You can manage your savings for many years before withdrawing them. Once they have been released, you have 12 months to sign a contract and purchase a home with the funds.
4. Speed up your savings
Since you’re paying less tax on these funds, it will allow you to accrue your deposit savings at a faster rate. This will get you one step closer to owning your home
With the positives of the scheme, there are, also some downsides to consider before using your super to buy a home.
1. FHSS can only be applied once
Once you apply to purchase your first home through the scheme, if you however change your mind, you will not be able to withdraw your savings under the FHSS. In such circumstances, the funds will remain in your super fund account until retirement
2. Tax implications
Once you receive the FHSS funds. Tax payable of this amount will be the rate of 30%
You are restricted from contributing more than $15, 000 per year under the scheme. Super contributions must be voluntary, meaning you can not withdraw super that has been paid by your employer under the scheme.
4. Can’t own any previous property
To be eligible for the scheme you must not have previously owned a home. if you’re however buying a property with someone who isn’t a first homeowner but yourself happen to be one, you are still entitled to the release of that money under the FHSS.
How do I withdraw my super from the First Home Super Saver Scheme?
To make a withdrawal through the scheme, you must lodge an application to the Australian Taxation Office. During the time of application, the ATO will calculate what earnings can be released. Once approved a payment summary will be sent to you showing your assessable FHSS. Remember, the tax payable on this assessable amount will receive a 30% tax offset.
Should you use super to buy your first home?
To make the most of FHSS so it works in your favour, it is important to check with your super fund before you start saving. This may well be an opportunity to get into the property market.
If you’re however struggling or having financial difficulties, it would be difficult to get approval from a lender despite having an adequate deposit.
Other than that, the earlier you start saving, the closer you will be to owning your first home. One of our lending specialists at Abacus Finance will help you with your decision process and provide products and services that meet your needs.
The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.