Looks at the First Home Super Saver Scheme to see if it could help you save.
When thinking about saving for the future, it can be hard to know how much to put aside to buy a home and how much to put into your retirement savings. Putting money into your super certainly makes sense if you’ve reached other financial goals, but what if you’re wanting to buy your first home? We take a look at what it means to sacrifice salary into super and unpack the First Home Super Saver Scheme.
A salary sacrifice is an arrangement you can usually make with your employer to put some of your pre-tax pay towards certain costs like childcare, a car loan or superannuation. Salary sacrificing means you get less in your take home pay, but can also mean you pay less at tax time as it reduces your taxable income, saving you money.
Salary sacrificing into super means making voluntary contributions to your superannuation fund, on top of the usual contributions your employer makes. If your next financial goal is to save for retirement, then salary sacrificing could be an option to consider. Just keep in mind you’re unable to access money you put in super until you turn 65, retire or reach ‘preservation age’, unless you’re eligible under a scheme.
One of these schemes is the First Home Super Saver Scheme (FHSS), which the government introduced in 2017 to help first home buyers save for a house deposit by reducing the tax they pay. The scheme allows first home buyers to make pre-tax super contributions and later withdraw those contributions (and any earnings related to them) to help with the purchase of their first home. But the scheme is a little complicated, so it’s important to know how the scheme works and whether it’s right for you.
The scheme helps first home buyers save for a deposit sooner by reducing the tax they pay. An average Australian earning an income is taxed at 32%, while super contributions are taxed at 15%. So if you earn $80,000 each year and decide to put $10,000 to super, you would pay $1,500 in tax on that $10,000, compared to the $3,450 you would pay if you didn’t.
At the moment, prospective first home buyers can make voluntary super contributions of up to $15,000 each financial year. When they are ready to buy a home, they can withdraw a maximum of $30,000 in voluntary contributions. As of July 2022, the maximum withdrawal amount is set to increase to $50,000.
If you want to set up this arrangement, you could do it in one of two ways:
There’s a limit to how much you can contribute to super each year, and this includes the money your employer contributes. You need to check what the government caps are each year and may need to pay more in tax if you contribute more than you’re allowed to. It’s important to note you can only withdraw contributions you made voluntarily to your super, not the mandated contributions from your employer.
To use the scheme, you need to be a first home buyer. You must use the extra voluntary contributions you’ve made to your super for the purchase or construction of your first home and both of these need to apply:
If you take out the money you’ve saved through the scheme but don’t end up using it for your first home, you’ll have to pay a special tax to access the money.
While there are tax-advantages to using this method, it can add paperwork and potential stress when the time comes for you to purchase your house. It’s a complicated way to boost your savings deposit.
Once your savings have been released, you have up to 12 months from the date you requested the release to sign a contract to purchase or construct a home. It can take 15 to 25 business days for you to receive the money, so you’ll need to factor in timing.
This guide contains general information to support you as you build your financial fitness. It doesn’t consider your personal circumstances and isn't financial advice. The information is true at the time of publishing.
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