A super way to save for your first home

Saving for the deposit on your first home isn’t easy — especially if you plan to buy in Sydney where the median house price is over $1.4 million.¹

To help reduce some of this strain, the Australian Government introduced the First Home Super Saver (FHSS) Scheme in the 2017 Federal Budget. The FHSS Scheme allows you to boost your savings for your first home by building a deposit inside superannuation.

How does it work?

Voluntary concessional (before-tax) and non-concessional (after-tax) contributions made into your super fund since 1 July 2017 can be used to save for your first home. You can contribute up to a maximum of $15,000 in a single financial year that can later be released. From 1 July 2022 the maximum amount of personal contributions that can be released is $50,000 per person plus associated earnings.

What are the benefits?

Tax

The tax benefits provided by superannuation allow you to accelerate your savings.

For example: salary sacrifice contributions to super are taxed at 15%. This is lower than the marginal tax rate most Australians pay, which is between 19% - 45%.²

When your first home deposit is released from super, it will also be taxed at either:

your expected marginal tax rate, including Medicare levy, less a 30% offset;
17% if the Commissioner is unable to estimate your expected marginal rate.

It sounds complicated, but the result is most Australian workers could enjoy a significant tax reduction by saving part of their first home deposit inside super.

Let’s look at an example:

James is an electrician earning $80,000 a year. He pays a marginal tax rate of 34.5%.³He wants to save for a first home deposit in super so he sets up a salary sacrifice arrangement with his employer. The concessional (before-tax) contributions he makes are taxed at 15%. Then, when he withdraws his deposit, he pays an additional 4.5% in tax (34.5% marginal tax rate less 30% tax offset) for a total of 19.5%. If James saves the full $50,000, that means a tax saving of $11,434 which can go towards his first home.

Interest

Another benefit of saving inside super is the interest rate on offer. The FHSS Scheme provides an interest rate (called deeming) that is currently set at 3% plus the current 90-day bank bill rate, making a total of 4%. This is higher than the interest rate for savings accounts offered by major lenders that currently range between 1.5% to 3%.

Are you eligible?

To be eligible for the FHSS Scheme, you must:

be over age 18,
have not previously owned property in Australia,
have not previously withdrawn FHSS funds from superannuation,
live or intend to live in the home you are buying as soon as possible, and
intend to live in the property for at least six of the first 12 months you own it, after it’s practical to move in.

Is the FHSS Scheme right for you?

As shown above, there are a range of factors to consider when deciding if the FHSS Scheme is right for you. Ultimately, if you’re unsure, it’s best to see a financial planner. A planner can work with you to break down and prioritise your financial goals and build a personal plan to achieve them. The right advice can help you take advantage of all the benefits available to you and avoid making costly mistakes.