The Coach: How The First Home Super Saver Scheme Will Work

My husband and I are saving to buy our first home. Can you please explain how the proposed First Home Super Saver Scheme announced in the 2017 federal budget will work and what we need to do to take advantage of the incentive?

From July 1, 2018, first-home buyers will be able to access their superannuation to withdraw voluntary contributions made to their superannuation fund from July 1, 2017, including associated deemed earnings, to buy their first home.

Under this initiative, up to $15,000 per year and $30,000 in total can be contributed to superannuation per person. Both members of a couple are eligible to take advantage of this measure to buy their first home. Effectively a couple can make a combined contribution of up to $30,000 per year and $60,000 in total.

The contributions will be included in the applicable superannuation contribution caps. The concessional contribution cap which includes employer contributions or personal deductible contributions will be $25,000 and the non-concessional contribution cap (personal after-tax contributions) will be $100,000 per financial year effective July 1, 2017. Voluntary concessional contributions will be taxed at 15 per cent when made to the fund. Non-concessional contributions can be made tax free.

Investment earnings available for withdrawal will be calculated at a deemed rate of return. The deemed rate of return will be the 90-day bank bill rate plus 3 per cent. Based on the current 90-day bank bill rate of about 1.74 per cent, the deemed rate of return would be 4.74 per cent.

Concessional contributions and earnings that are withdrawn to buy a property will be taxed at the individual’s marginal tax rate less a 30 per cent tax offset. When non-concessional contributions are withdrawn, they will not be taxed, however the earnings are anticipated to be taxed at the individual’s marginal tax rate less the 30 per cent tax offset.

The First Home Super Saver Scheme will be administered by the ATO. The ATO will determine the amount of contributions that can be released as a deposit and will instruct the superannuation funds to make the withdrawal payment. The ATO will administer the compliance to ensure the funds are used to buy a first home.

As the initiative caps out at a limit of $60,000 per couple, it should be used as part of an overall strategy of saving for a home deposit.

If you plan to buy a home in the next three years, you would want to start the strategy as soon as possible. As the pre-tax contributions will be limited to the concessional contribution cap of $25,000 which includes employer contributions, if you earn $120,000, then you already would receive at least $11,400 in superannuation guarantee contributions a year so you would therefore be limited to $13,600 a year of voluntary concessional contributions towards your first home deposit.

The First Home Super Saver Scheme is only a proposal and needs the passage of legislation before being implemented. My understanding of how the initiative will operate is limited to what information has been published to date. There are some aspects requiring further clarity; for example what happens if the value of the super fund actually falls or the rate of return is less than the deeming rate? In either of those instances, how much can be withdrawn? What happens to eligibility if one member of a couple has previously bought a home? What are the consequences of breaching the rules? Stay tuned for further detail once the legislation is released.

Andrew Heaven

The Australian Business Review

27 May 2017

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