Will it really help you save a deposit?

In an effort to help more first home buyers get into the property market, the Australian Government passed the First Home Super Saver Scheme (FHSSS) bill into parliament in December 2017.

Not to be confused with the First Home Super Account (FHSA), the super saver account allows you to salary sacrifice or make non-concessional contributions (after-tax) and reap the rewards of a reduced tax rate when withdrawing the funds.

With most lenders having strict policies around deposits, will the funds in your super saver account count as genuine savings?


Is it genuine savings?

Lenders prefer your deposit to be savings you’ve held or accumulated over a period of 3 months.

Generally speaking, they like to see regular contributions made into a savings account.

However, under the First Home Super Saver Scheme, salary sacrificing will likely be acceptable because you’re essentially making regular contributions from your pay.

Lump sum deposits as non-concessional contributions (after-tax) may also be acceptable.

The reason is that you cannot access your super saver account contributions until 1 July 2018.

If you start contributing from 1 July 2017, you will have held funds for up to 12 months which covers the requirement to hold funds for 3 months.

Is some of your deposit tied up in the super saver account?

Call us on 1300 889 743 or complete our free assessment form and we can let you know if you qualify for a home loan.


So is it the same as using super as a deposit?

Technically, yes.

However, the funds that you contribute to your superannuation fund will sit in a separate super saver account.

You cannot drawdown from your current super balance as it stands now.

In addition, different tax rules apply to the super saver account scheme.


How does it work?

From 1 July 2017, first home buyers can start making voluntary concessional (before tax) and non-concessional contributions in order to save for a deposit.

You can contribute a maximum of $30,000 over two years, with your contributions capped at $15,000 per year.

The benefit is that when you contribute these funds you’ll get a 30% discount on your marginal tax rate (including the Medicare levy).

To explain, if you earn $60,000 a year, your marginal tax rate would be 32.5% (income tax rates for 2017/2018 year), so you’ll get a discount from that.

You’ll earn interest on the funds you contribute and you’ll be able to withdraw these funds from 1 July 2018.


It’s a weak first home buyer policy!

The biggest reason why the First Home Super Saver Scheme falls short is that you can only contribute a maximum of $30,000 over two years, with your contributions capped at $15,000 per year.

The government claimed that the scheme would boost savings by up to 30% but the numbers just don’t add up.

In fact, according to many tax and financial experts, including members of the super industry, the average income earner would only be about $2,500 better off than if they were to simply continue saving into a normal bank savings account.

That’s not to mention the fact that the median house price in Sydney and some other capital cities has hit $1 million.

As a minimum, you need a $50,000 to $100,000 deposit just to get into these types of properties so $30,000 over two years barely covers stamp duty.

What’s the problem?

Well, despite the 30% tax offset on concessional contributions, you’re ultimately still being taxed for trying to save for a deposit!

To explain, let’s say that Michael earns $70,000 per year making his marginal tax rate 32.5%.

He salary sacrifices $10,000 into his super saver account over financial year 1 and another $10,000 over financial year 2.

If he were making these contributions into his normal super account, he would be taxed $3,000 on those contributions, leaving him with just $14,000 in his account.

Even with the 30% rebate for the super saver account, Michael is still paying $1,200 in tax over the two years, albeit he is saving $1,800.

Aren’t you earning interest though?

Yes, you do in fact earn interest on the contributions you make to the First Home Super Saver Scheme.

However, you’re not generating the full investment return normally generated by your super fund.

Instead, the earnings you release are calculated using a so-called “deemed” rate of return based on the 90 day Bank Bill Swap Rate (BBSR) plus three percentage points (as per the Shortfall Interest Charge).

For argument’s sake, let’s say that Michael’s super fund returns 10% per annum.

With the ATO instead applying the BBSR plus three percentage points, the rate of return may only be 4.50%.

After the two years when Michael goes to withdraw the funds, his final balance may be $16,511 (including $711 worth of interest earnings).

Altogether, Michael ends up only $2,511 ahead under this scheme.

There are more discussions under way regarding the benefits of superannuation and home ownership so please visit our ‘Using Super As A House Deposit‘ to stay informed.

Disclaimer: This should not be read as tax advice. Marginal tax rates, rebates and the BBSR rate can change. You should speak to your account to get accurate figures for your situation and salary and to ensure you’re following current tax and superannuation legislation.


Is there a better option?

It can be really difficult to save a minimum 5% deposit with house prices continuing to rise.

As time goes on, it just gets more difficult.

Having to wait at least 1-2 years to access contributions you’ve made to the First Home Super Saver Scheme will amount to a drop in the ocean as far as your deposit requirement is concerned.

In the meantime, you may qualify for no deposit home loan today!

By far the most popular no deposit option is a guarantor loan but we’re also experts in gifted deposits.

Please call us on 1300 889 743 or fill in our free enquiry form to speak with one of our mortgage brokers about your situation and goals.

Let us help you get your foot on the property ladder!


Am I eligible for the FHSS?

You’ll be eligible to release a maximum of $15,000 in voluntary contributions from 1 July 2018 (for contributions made from 1 July 2017 onwards) if you meet the following rules:

  • You must be 18 years or older.
  • You have never used the the FHSSS before.
  • You have never held freehold interest or lease of land in Australia.
Please contact the Australian Taxation Office (ATO) to apply for the super save scheme. Does this include vacant land?

Yes, as long as you sign the building contract within 12 months.

If you meet this criteria, you can apply with the Australian Taxation Office (ATO) Commissioner to enter into the scheme.

Do I have to prove that I’m buying a property?

From 1 July 2018, you’ll be able to withdraw your scheme contributions at which point you’ll have 12 months to enter into a contract to purchase or construct a residential home.

You may need to provide a copy of the signed Contract of Sale and Proof of Occupancy certificate if requested by the ATO.

You’ll also be required to occupy the premises for the first 6 of the first 12 months that you purchase the property.

What if I can’t move into the property yet?

There are exceptions to the time period for occupying the property such as in the case of construction.

Between purchasing the block of land and your home being complete, it will take more than 12 months so the ATO will likely accept this.

However, you must enter into the building contract within the 12-month period.

There may be other reasons you cannot move into the property right away such as being overseas or work-related reasons. It’s a matter of providing sufficient evidence to the ATO and speaking with your accountant.

What if I can’t find a property right away?

You can apply for an extension of another 12 months (24 months in total) after withdrawing your funds if you haven’t yet found a property.

You need to seek permission from the Tax Commissioner about this. Your accountant should be able to assist you with this.

What if I can’t find a property right away?

If you can’t find a property and/or don’t sign a Contract of Sale within the first 12 months, you have the option to recontribute the release amount into superannuation.


What else is considered as genuine savings?

Genuine savings is complicated and each lender has their own genuine savings policies!

Apart from regular savings, the following is considered to be genuine savings if they add up to be more than 5% of the purchase price.

For a $600,000 mortgage, that works out to be $30,000:

  • Term deposits held for 3 months.
  • Shares or managed funds held for 3 months.
  • Equity in real estate (varies depending on the lender).
  • If you’ve been renting for the last 3 months then some exceptions may apply.

Be careful!

Some banks require 6 months savings history compared to the typical 3 month requirement.

Check out the genuine savings page for more information.

  • Shepard

    I like the idea of this first home super saver scheme but I did consider it not helping save a whole lot. When will this first home buyers super deposit actually be available?

  • Hi Shepard
    Yes, the first home superannuation saver scheme only allows you to contribute a max of $30k over 2 years so it’s not a whole lot. First home buyers can only access their super saver account after 1 July 2018 and this will be counted as genuine savings as long as it’s been held for at least 3 months. However, guarantor home loans are available and they’re still the most popular no deposit option because they allow you to borrow 100% without a deposit, genuine savings and avoid LMI as well.

  • Zak Abro

    Hello,

    I have a few question, excluding the first home super saving scheme you are allowed to contribute $25k into your super per year if your under 55 years old

    1. as per the first home superannuation saver scheme you are allowed to contribute $15k a year (30k in total) is this included as part of the super cap of $25k or over and above??
    2. Do i need to notify my super fund about wanting to join in this scheme?
    3. my employer contributes 9.5% into my super fund- is any of that contribution allowed for the first home superannuation saver scheme or is it purely voluntary contributions.
    thanks
    Zak

  • Hi Zak
    Good questions. Unfortunately we’re finding little info on this as well. After the laws were passed there seems to be no follow up about this. If you find the answers please post them here so we can update our page.

  • Laura Drost

    1. The 15k is part of the 25k cap. SG of 9.5% also makes up part of that cap so be careful. If your SG is over 10k per year by itself you may land yourself in trouble trying to sacrifice a further 15k.
    2. I would like to know this as well. Difficult to find detais about the logistics of it all.
    3. 9.5% SG does not count towards the super saver scheme. Have to contribute extra.

    Cheers :)

  • Paul

    Hello All,

    Is the $15k cap applies to the deposit or the withdrawal?

    Example:

    1) can I make voluntary contributions of $17,467.00 and then withdraw $15,000

    Or

    2) I can only contribute $15,000 and make the withdrawal of $12,500?

    Please note my example is solely concerned with contribution tax and is excluding issues related to the $25k contribution limit.

    Thanks in advance.

  • Hi Paul,
    The $15k cap applies to contributions. However we’re not tax or superannuation advisers so please check with the ATO or your accountant or financial planner before you make any decisions. We can assist you when you want to use these funds to buy a home.

  • Paul

    Thanks for the fast reply. It is what I expected. If you maximise your contributions you only end up with $25k towards your deposit.

    Is there any chance that we will all be contributing to our super fund only to see the law doesn’t pass and end up having our funds trapped in super accounts?

  • I wouldn’t change your plans until the law is passed! It’s very risky to make decisions based on proposed legislation.

  • fuqdapolice

    Is it possible to use rental history and just the $20000 homeowners grant and no savings?

  • Hi fuq
    Yes this is possible as long as you buy a new property that is either off the plan or that is complete. I.e. not a land & construction or a house and land package.

    The reason for this is that if you buy land and build then the grant is paid during construction, so you don’t have any money to settle on the land.

    Whereas when you buy a new property in some states you are in a much better position. E.g. for QLD for a $400,000 new home then $20,000 is the 5% deposit needed. Just be careful as lenders like to see at least a little in savings from you otherwise you may fail their credit scoring. Even just a few thousand dollars is ok in most cases. You must have stable employment and not too much credit card debt.

    Note that we recommend you buy a complete property rather than off the plan as with off the plan you are committing to buy a home in the future but a lender cannot commit to give you a loan until you are within 3 months of settlement. So you’re taking a big risk. If lending policies change (which they regularly do!) then you can be left high and dry.

  • astellingwerff

    I have paid a deposit for an off the plan apartment. It is due to settle around September 2109. Can I use the FHSSS to save between now and settlement and withdraw on settlement? Or can it only be used before paying a deposit?

  • Hi
    I believe you can use the FHSSS for this purpose. However we’re experts in lending, not in deposit accounts, so you’d need to check with a professional in that area (financial planner / accountant / government website) to be certain of this. It’s still relatively new and I don’t think many organisations are ready to handle deposits yet.