FIRST HOME SUPER SAVER SCHEME (FHSSS)
"The Pros Cons and Important Considerations"
One of the announcements in the Federal Government Budget for 2017-18 was the proposed introduction of a new scheme to help first home buyers break into the market. The previous scheme aiming to achieve a similar objective being the First Home Saver Account (FHSA), was unsuccessful and subsequently abolished on 1 July 2015.
If enacted, the new First Home Super Saver Scheme (FHSSS) is proposed to commence on 1 July 2017 and uses the concessionally taxed superannuation system to help first home buyers save for a deposit. Under the scheme, up to $15,000 per year and $30,000 in total can be contributed to super as voluntary superannuation contributions. Withdrawals will be allowed from 1 July 2018 onwards.
So what are the “pros” and what are the “cons”?
Pros • The $30,000 limit on contributions to the FHSSS is a per individual limit and
therefore a couple where both qualify as first home buyers have a combined
limit of $60,000.
• The contributions made to superannuation under the scheme are tax deductible,
either through salary sacrifice of wages or personal contributions claimed on the
tax return.
• In the majority of cases, the First Home Super Saver Scheme will provide a real
cash benefit to those saving for their first home. For example:
A couple, with incomes of $75,000 and $50,000 respectively could save an
additional $11,920 combined over three years towards their first home by
contributing the maximum $30,000 each under the scheme. (based on the ATO
Budget estimator tool – refer below)
• Those with higher taxable incomes stand to gain more due to the tax savings
being tied to marginal tax rates.
• A 30% tax offset is available to each individual on a withdrawal of funds from the
super fund FHSSS account. (The withdrawal is taxed at marginal tax rates – refer 'cons' below)
• Low income earners can make non-concessional voluntary contributions under
the FHSSS which do not attract tax in the super fund.
Cons • Contributions made under the scheme are counted towards the existing
superannuation contributions caps for individuals, ie. $25,000 for the 2017-18
year. If the cap is exceeded excess contributions tax will apply.
• Concessional contributions to superannuation are taxed at 15% in the Fund along
with any earnings from such contributions.
• Withdrawals from superannuation for the purchase of the qualifying first home
are taxed at the individual’s marginal tax rates plus Medicare levy for the relevant
year. (A tax offset of 30% on the withdrawal amount is available to reduce the tax
amount – refer ‘pros’ above)
• The ATO will be responsible for administering the scheme and it is unclear the
process to be taken in this respect. Additional funding has been allocated to the
ATO in the Budget for this purpose.
• There will be challenges for super funds and the ATO as communication will be
required between the two in order to allow the cashing of benefits in sufficient
time for property settlements.
• It also presents challenges for financiers, brokers, solicitors and real estate agents
in settling property purchases where the scheme has been used by the buyer.
Other Considerations If the measure is introduced, the rules and processes to be introduced by the ATO in administering the scheme will be crucial to its success. Allowing money to move to and from the super system in a timely fashion will be a key feature. Other considerations include: • It is unclear whether the 30% tax offset available when withdrawing the home
deposit from super is a refundable or non-refundable tax offset. This is
particularly relevant for a couple where one is a low income earner wanting to use
the scheme.
• The tax savings are much less certain for an individual with varying income levels
from year to year. The amount of tax saved and therefore the extra benefits of
using the scheme depends on the individual’s marginal income tax rate in the
year of the super contribution compared with the tax rate in the year of the
withdrawal.
• The Federal Govt Budget website has a useful estimator that allows you to
estimate your cash benefit from using the FHSSS.
http://www.budget.gov.au/estimator/
Always seek advice from a qualified Accountant and Tax Agent prior to utilising the FHSSS or other tax concessions to ensure you qualify and your affairs are setup correctly.
Disclaimer The information and any advice provided in this article has been prepared without taking into account your objectives, financial situation or needs. Because of that, you should, before acting on the advice, consider the appropriateness of the advice, having regard to those things. You should also obtain a copy of and consider the Product Disclosure Statement for any financial product mentioned before making any decision.
