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There has been a plethora of debate about home affordability in the last 12 months and it was pleasing to see some budget measures announced in the most recent Federal Budget.
This blog explores how those individuals hoping to break into the property market for a place to call home can take advantage of the new rules post 1 July 2017.
Individuals will be able to make voluntary contributions of up to $15,000 per year and $30,000 in total, to their superannuation account to purchase a first home. These contributions, which are taxed at 15%, along with deemed earnings, can be withdrawn for a First Home deposit. Withdrawals will be taxed at marginal tax rates less a 30% tax offset (rebate) and allowed from 1 July 2018.
For most people, the First Home Super Saver Scheme could boost their savings towards a deposit by at least 30% compared with saving through a standard deposit account. This is due to the concessional tax treatment and the higher rate of earnings often realised within superannuation.
Many employees will be able to take advantage of salary sacrifice arrangements to make pre-tax contributions. Those individuals who are self-employed or whose employers do not offer salary sacrifice will be able to claim a tax deduction on personal contributions, meaning savings effectively come out of pre-tax income.
Voluntary contributions under this scheme must be made within existing superannuation caps. The total concessional contributions an individual can make, from both compulsory employer contributions and voluntary contributions, including those made under the scheme cannot exceed $25,000 in the 2017-18 financial year.Voluntary contributions include:
The amount of earnings that can be released will be calculated using a deemed rate of return based on the 90 day Bank Bill rate plus three percentage points (as per the Shortfall Interest Charge).
Up to $15,000 of voluntary contributions made in a financial year count towards the amount that can be released. The maximum amount that can be released is $30,000 of personal contributions plus an associated deemed earnings amount.
The First Home Super Saver Scheme will be administered by the ATO, which will determine the amount of contributions that can be released and instruct superannuation funds to make these payments accordingly.
By my understanding this is one piece of new legislation that any person wanting to save faster for a home deposit should take up. But, like with anything to do with superannuation, having the correct fund and asset allocation and strategy is key to a successful financial outcome.
Readers of this blog and subscribers of Investing in Property can take advantage of a free 30 minute consultation via telephone or Skype by contacting Rhonda on 1300 662 768 or emailing [email protected]
This document has been prepared by Ethical Financial Advice ABN 42 139 798 324. Both Ethical Financial Advice and Adam Kennedy are Authorised Representatives of Shartru Wealth Management Pty Ltd AFSL No. 422409. While care has been taken in the preparation of this document, no liability is accepted by Ethical Financial Advice nor Shartru Wealth Management, its related entities, agents and employees for any loss arising from reliance on this document. This document contains general advice. It does not take account of your individual objectives, financial situation or needs. You should consider talking to a financial planner or licenced accountant before making a financial decision. Taxation considerations are general and based on present taxation laws, rulings and their interpretation and may be subject to change. You should seek independent, professional tax advice before making any decision based on this information.
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