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First home buyers get that leg up
Some laws just pass without fanfare.
First home buyers got their promised break on the night of the Same Sex Marriage Act when the Federal Parliament passed the key elements of the Turnbull Government’s housing affordability plan.
This means first home buyers now have an effective tax cut by allowing them to save for a deposit inside superannuation through the First Home Super Saver scheme.
We also covered this as a forecast development in a Blog article in June, 2017 when the proposal was announced by the Turnbull government.
Through the Scheme individuals can contribute up to $30,000 (up to $15,000 a year within existing caps) into superannuation. This means an eligible couple could contribute up to $60,000 super charging the deposit savings.
Most first home buyers will be able to accelerate the savings by at least 30% using the scheme. For example, an individual earning $70,000 makes annual salary sacrifice contributions of $10,000 for three years will be able to withdraw after all taxes $25,892.
This is $6210 more than the $19,681 they would have saved if investing after tax dollars ($10,000 less $3450 tax) for three years in a bank account earning 2% per annum.
Special taxing arrangements will apply to these superannuation contributions.
Like other salary sacrifice contributions, they will come out of a person’s pre-tax income and then be taxed at 15% in the super fund. Inside the fund the contributions will earn a deemed deemed rate of interest (currently about 4.8%) with the interest amount then taxed at 15%.
On withdrawal the whole amount is taxed the individuals marginal tax rate less a 30% tax offset. This means that the maximum tax rate on withdrawal will be 17%.
Individuals who are self-employed or whose employers don’t offer salary sacrifice can still make voluntary contributions and then claim the contributions as a tax deduction, subject to the $25,000 cap on concessional contributions. This has the same effect and means that savings effectively come out of pre-tax income.
If I have confused you and you want to see how it works for you in practise click on this handy Treasury Estimator.
From July 1, 2018 first home buyers will be able to withdraw voluntary superannuation contributions they’ve made since July 1, 2017, along with the deemed rate of earnings, to help buy their home.
There is no question in my mind that this will give first-time buyers a significant leg up towards saving for their deposit, helping them to overcome a key barrier for getting into the housing market.
by David Hamilton
First home buyers get that leg up
palmbeachfn.com.au December 2017 First National Palm Beach 18 Sixth Ave Palm Beach, Queensland 4221
Phone: 07 5559 9600