Budget Changes Which May Benefit Those on the First Home Super Saver Scheme
by Dominique Schuh
The Australian sharemarket fell on Wednesday at the open as the new bank liability-levy hit the lenders, but it soon spiked higher on optimism policy certainty would be good for the domestic economy. The S&P/ASX 200 index dropped 0.4 per cent at the open as bank dividends looked threatened, but push-back against the levy encouraged bargain hunting in the Big Four and it ramped to a 0.8 per cent gain. The index slipped and closed up 35.5 points, or 0.61 per cent, at 5875.4 with miners rallying on firmer iron ore prices and $75 billion in fiscal infrastructure spending plans over 10-years supporting industrials. The Australian dollar bounced US0.3¢ off its overnight low to US73.60¢ amid optimism the Budget would help retain Australia's AAA credit rating. Government 10-year yields dropped 2.4 points to 2.658 per cent.
What this means for you:
With the Federal Budget released on Tuesday night we were surprised and perhaps a little happy that there were no changes to superannuation announced. This is good news, as we are still working with clients on the changes that are already legislated to take effect on July 1.
The main changes in the budget that may be of benefit to clients are the first home super saver scheme and the changes to downsizing for older Australians. Here, we will talk about the first home super saver scheme.
First Home Super Saver Scheme
With house prices high in many parts of the country, young Australians are entering the housing market later in life than in previous generations. A key difficulty is saving a deposit. From 1 July 2017, individuals can 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 These contributions, which are taxed at 15 per cent, along with deemed earnings, can be withdrawn for a deposit. Withdrawals will be taxed at marginal tax rates less a 30 per cent offset and allowed from 1 July 2018.
For most people, the First Home Super Saver Scheme could boost the savings they can put towards a deposit by at least 30 per cent 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. Individuals who are self-employed or whose employers do not offer salary sacrifice can 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 2017-18. 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). 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. This measure will assist first home buyers to save a deposit for their home faster.
First Home Super Saver Scheme Case Study:
Michelle earns $60,000 a year and wants to buy her first home. Using salary sacrifice, she annually directs $10,000 of pre-tax income into her superannuation account, increasing her balance by $8,500 after the contributions tax has been paid by her fund. After three years, she is able to withdraw $27,380 of contributions and deemed earnings on those contributions. Her withdrawal is taxed at her marginal rate (including Medicare levy) less a 30 per cent offset.
After paying $1,620 of withdrawal tax she has $25,760 that she can use for her deposit. Michelle has saved around $6,240 more for a deposit than if she had saved in a standard deposit account. Michelle's partner Nick has the same income and also salary sacrifices $10,000 annually to superannuation over the same period. Together they have $51,520 that they can put towards a deposit, $12,480 more than if they had saved in a standard deposit account.
If you would like to discuss how you can take advantage of this scheme, contact Dominique Schuh today on 5482 2855.