First home super saver scheme
From 1 July 2018, super fund members can withdraw up to $30,000 ($60,000 for a couple) of voluntary contributions made to their super after 30 June 2017 to help them purchase their first home.
Why consider it?
Savings within super are generally taxed at a rate of 15%. For most people, this is less than the tax rate they’d pay on their assessable income outside super, which could be up to 45% plus Medicare levy. The key advantage the FHSS scheme offers over traditional saving is that these tax savings can be added to a home deposit.
What’s the catch?
The government has capped the amount an individual can withdraw under the scheme: a $15,000 limit applies to the contributions that can be eligible from any one financial year and a $30,000 limit applies to the total contributions that can be eligible for withdrawal across all years. This means if voluntary contributions of $20,000 are made during a financial year, only $15,000 can later be withdrawn from those contributions. The annual contributions cap of $25,000 for before-tax contributions still applies, which also includes Super Guarantee employer contributions. This may limit the amount a person can contribute and save under the scheme.
How will the scheme work?
From 1 July 2018, a person can apply to the Australian Tax Office who will advise the maximum amount that can be released from their super to use towards the purchase of their first home. This amount will be a return of voluntary contributions made to super, minus any tax (equivalent to the member's marginal tax rate less a 30% offset or a flat 17% if the marginal tax rate cannot be estimated), plus a deemed rate of investment earnings.
The home purchase needs to occur within 12 months of the release of funds from super. However, an application can be made to the ATO for a 12-month extension for the purchase to occur. If a purchase doesn’t happen, the released amount can be contributed back into super, or retained outside of super with additional tax (a flat rate of 20%) being applied to the assessable released amount.
Proceeds from downsizing family home can be contributed to super
From 1 July 2018, people aged 65 years or over who are thinking about downsizing their home can contribute up to $300,000 ($600,000 combined for a couple) of any profit made from the sale of their family home, if owned for 10 years or more, into their super.
The measure could offer retirees a practical way to use their super to translate profit from the sale of their family home into a regular income in retirement.
What are the advantages?
Existing age and balance rules that restrict contributions to super, particularly for those aged 65 or over, won’t apply under the downsizing measure. Specifically, an individual is unable to make non-concessional (post-tax) contributions to super after reaching age 65, unless they first meet a work test (40 hours of gainful employment within a 30-day period in the financial year the contribution is made). Those over age 75 cannot make any form of contribution to their super. Further, those with more than $1.6 million in super cannot make further non-concessional contributions to super.
Neither the age tests nor the over $1.6 million balance rule apply under the downsizing measure, meaning contributing the proceeds from the sale of a principle residence may be the only way to contribute more to super once retired.
What’s the catch?
A number of considerations exist. Firstly, the proceeds from sale must be contributed to super within 90 days from the date of settlement.
Secondly, if it’s intended that the home proceeds be used to fund a regular income in retirement through a super income stream, it is important to note that no more than $1.6 million can be transferred from a super account into a tax-free super income stream. This includes any monies contributed from the sale of a home.
Finally, it’s important to remember that a person’s super balance is assessed for eligibility for the government age pension, whereas the value of a family home is not. People may therefore lose their entitlement to the age pension when an exempt asset, being a principle residence, moves into superannuation, an asset-tested investment.
By Sunsuper team
The views of the author and those who provided the responses to the comments posted on the Knowledge Centre are not necessarily the views of the Sunsuper Board. While Sunsuper attempts to make a wide range of information available via the Knowledge Centre it may not cover all the options available to you. We’ve put this information together as general information only and as such it doesn’t take into account your personal financial objectives, situation or needs. You should get professional advice before relying on this information.