There’s a tax Incentive available to first-home buyers that makes your savings stretch further, and if you’re part way there in saving a deposit for your first home, the time to act is now.
What’s the opportunity?
Established in 2017, the First Home Super Saver Scheme (FHSS) was developed to help first home buyers get onto the property ladder. The rules of the scheme allow you to make extra tax-deductible contributions of up to $15,000 per person ($30 000 per couple) to your super fund, and then withdraw this money. The investment earnings are generated in super, are also used to purchase your first home.
What it seems not many clients are aware of is that you can reduce the time by making your first contribution before the end of the financial year and receiving the benefit in your next tax return.
How does the FHSS work?
You can apply to have a maximum of $15,000 of your voluntary contributions from any one financial year included in your eligible contributions to be released under the FHSS scheme, up to a total of $50,000 contributions across all years. You will also receive an amount of earnings that relate to those contributions. This is per person so if you’re in a relationship, you can benefit from both participating in the scheme to maximise the amount you can save.
The benefit to saving through super, means you pay less tax than saving outside super, this means you could build the deposit for your home faster. Before-tax contributions are taxed at 15% in super, whereas when you save outside super you pat tax at your marginal rate (up to 48.5%) After-tax contributions, which have already been taxed outside super, are not taxed again inside super.
As we near the end of the financial year, if you were to be saving a deposit for property and haven’t considered the super saver scheme now is an opportune time to discuss the tax savings with your financial advisor. The reason for this is you’re capped as to how much you can contribute each financial year, if you’re looking to maximise your deposit, now’s a great time to review your options to ensure you’re on the right path.
A few considerations to be aware of
First, and most importantly, whenever you are making such a decision it’s vital to seek the advice of a tax specialist or a Financial Adviser. They can ensure you are making a sound decision and are aware of all risks and advantages.
Secondly, you cannot use the funds for any purpose other than paying for the home. Once it’s in your super, that’s the only purpose it can be withdrawn for.
It is essential to consider that a tax rate can change over time, and there are inherent risks if a super fund decreases in value for a period of time.
As always, there’s plenty of fine print to be across. As your mortgage broker, we will help you navigate the details and ensure that what we recommend is appropriate to your circumstances.
For further reading, we invite you to check out this from the ATO website:
What does that mean for you?
This scenario could help you grow your home loan deposit faster; you can maximise the opportunity provided to first-home buyers to tap into super’s tax breaks to give your deposit a boost.
If you’d like to talk through how all of this applies to your circumstances, we invite you to reach out and have a chat.
You can even start your enquiry now with our online contact form. Following your submission one of our team members will be in touch to assist you further.
Disclaimer:
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