First home buyers to fast track savings using their super funds

Allowing first home buyers to use super as a vehicle to save faster for a deposit.

First home buyers to fast track savings using their super funds

In Budget 2017 Scott Morrison tackled the vexed issue of housing affordability by stating that there is no silver bullet – i.e., having promised to make this a centrepiece of his budget, the problem was beyond the capacity of this government to come up with a sustainable solution. But he did offer what he described as a ‘targeted and comprehensive’ plan, with two key initiatives that will be of interest to retirees:

  • Assisting first home buyers use super as a vehicle to save faster for a deposit, and
  • Providing incentives for older Australians to downsize from the family home.

As you will see, both policies have serious shortcomings. as you will see. Let’s start with the assistance to first home buyers first.

First home buyers fast track to a deposit

From 1 July 2017, first homebuyers will be allowed to contribute up to $15,000 each (up to a total of $30,000) to their superannuation account and later withdraw this amount as a deposit for a first home. Tax on these savings will be treated in the same way as super, with contributions and earnings taxed at 15 per cent (as opposed to the applicable marginal tax rate) and withdrawals taxed at marginal rates, let 30 per cent. Both partners in a couple can use this strategy and combine the savings for a joint home deposit.

The questions asked of the Treasurer in the press conference zeroed in on the possible flaw in this policy – will this amount of money, tax advantaged as it is, really make the difference between buying or not in overheated property markets where inner city homes come at a price of $700,000 or more. One might also ask whether young couples such as Louise and Craig, in the following example, would have $20,000 per annum pre-tax income to put into their super to save for a house, for three or more years in a row. Another concern is that this is a mis-use of superannuation as it was originally legislated in 1992 and will lead to further tinkering with the sanctity of what is meant to be a vehicle solely designed for retirement income supplementation.

How does this work?

Boosting Louise and Craig’s first home deposit

Louise earns $60,000 a year and wants to buy her first home. Using salary sacrifice, she annually directs $10,000 of pre-tax income into her superannuation account, increasing her balance by $8500 after the contributions tax has been paid by her fund. After three years, she is able to withdraw $27,380 of contributions and the deemed earnings on those contributions. After withdrawal tax, she has $25,760 that she can use for her deposit. By using this scheme, Louise has saved around $6240 more for a deposit than if she had saved in a standard deposit account.

Louise’s partner, Craig, earns the same income and makes the same salary sacrifice $10,000 annually to superannuation over the same period.

Together, after 3 years, Louise and Craig have $51,520 for their first home, $12,480 more than if they had saved in a standard deposit account.

Case study source Commonwealth of Australia, 2017.

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    COMMENTS

    To make a comment, please register or login
    musicveg
    10th May 2017
    12:51pm
    Nothing done to stop foreign investments which is the real reason house prices are going up and more and more people will be homeless as rents keep going up too. Too many empty investment properties flooding the market. The supply and demand thing is not helping either. And how is an unemployed person to survive in this market, can't get a job if homeless.
    Renny
    10th May 2017
    12:54pm
    I agree with you and I see developers using this to rake more money in. Cynical maybe, but that's how it usually runs. I actually hope it works.
    KSS
    10th May 2017
    12:57pm
    There is a ghost tax musicveg that will tax the empty property and also they have removed the 'principal residence' tax relief on overseas investors.
    MICK
    10th May 2017
    9:50pm
    It should be more than $5,000 as this would not deter many at all.
    KSS
    10th May 2017
    1:03pm
    So now that this example couple would have over $12000 more than they would have had is STILL a reason to complain?
    MICK
    10th May 2017
    9:53pm
    Funny. Remember we are talking about genY here.
    Ny19
    10th May 2017
    1:52pm
    They should have done something about negative gearing and capital gains tax. Why won't they go there? Not good enough LNP!!!
    MICK
    10th May 2017
    9:54pm
    Interest rates is the place to start. This has been the cause of the problem in the first place along with no construction to speak of for 25 years or longer.
    dougie
    10th May 2017
    1:52pm
    Maybe another add on to this process is to allow a couple when they have achieved the maximum special savings of $30,000 each or $60,000 a couple to borrow for a period of 5 or 10 years 75% of their balance in Super Funds, at the time of purchase, to add to their special savings. This balance would need to be paid back but at least they would have access to the funds to assist with a deposit.
    Old Geezer
    10th May 2017
    8:36pm
    If you have a SMSF there is a way already you can use the funds in it to buy yourself a house to live in. Many people use this to buy a house for their kids to live in. Works well if you have a good balance in your SMSF.
    MICK
    10th May 2017
    9:50pm
    Bollocks. What advantage is there for most young people to do this. They do not earn much so their tax component would be small so no point. Add to that the fact that $30,000 is not anywhere near enough for a deposit and the deal is a poor one at best.


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