Buying your first home has become increasingly difficult in recent years, particularly for those living in the eastern states.
Low interest rates have fuelled a rapid rise in house and unit prices, leaving many struggling to enter the property market.
To help with this problem, the Government has now legislated that first home buyers can use super to help pay for their loan.
Under this legislation, first home buyers can make additional contributions to super over and above any compulsory Super Guarantee contributions (9.5% of salary), even if self-employed. The contributions would be taxed at 15%, instead of the person’s normal marginal tax rate of up to 47%.
These contributions of up to $15,000 per year, or a lifetime limit of $30,000 plus associated earnings, can then be withdrawn from super up to 12 months before buying your first house. When withdrawn, it is to be taxed at the individual’s marginal tax rate less a 30% offset.
Put simply this measure effectively gives the first home buyer a 15% tax saving on these contributions, up to $4,500 per person or $9,000 per couple. That’s an extra $9,000 towards your first home.
The following are some of the important practicalities:
- Your existing employer 9.5% Super Guarantee contributions and these additional contributions of up to $15,000 cannot exceed a combined $25,000 per annum.
- You can either tell your employer to salary sacrifice the additional contributions, or you can do a transfer from your personal bank account as a member contribution instead.
- If you do transfer directly, it is important that after the end of the financial year, you tell your super fund that you intend to claim a tax deduction on this transferred amount, before you release the funds.
- This strategy is not available to those using the public fund SuperSA Triple S (however they could open another super fund subject to contribution limits)
Release & Property Purchase
- You need to apply to the ATO to have a first home saver determination to release the super, before signing a contract for the home.
- Once the funds are released, you will have 12 months to purchase the home. If you do not purchase a home in that period, you can either apply for a 12-month extension, return the funds to super, or pay a tax penalty.
- You must live in the home for at least 6 of the 12 months once purchased (i.e. it cannot be exclusively a rental property)
John is planning on buying a new house in November 2018. John’s employer already contributes $10,000 per annum to super for him as Super Guarantee. John contributes a further $15,000 from his personal bank account (which maximises the $15,000 first home annual limit, as well as the general $25,000 pre-tax contribution limit). In July 2018, John tells his super fund to claim this $15,000 as a tax deduction. He then applies for a release determination and has the $15,000 plus associated earnings released. He effectively makes a 15% or $2,250 saving for the exercise. In November 2018, he buys a home and lives there for at least 6 of the next 12 months to satisfy the scheme’s requirements.
As you can see it is a slightly complicated process, so it would be best to speak to the super fund or your advisor before entering into this arrangement.
It is yet to be seen if the Government will develop further ideas to help first home buyers, but this is at least a step in the right direction and a welcome start for those feeling locked out of the booming property market.
For more information contact your local William Buck advisor.
Disclaimer: The contents of this article are in the nature of general comments only, and are not to be used, relied or acted upon with seeking further professional advice. William Buck accepts no liability for errors or omissions, or for any loss or damage suffered as a result of any person acting without such advice. Liability limited by a scheme approved under Professional Standards Legislation.