Budget 2017: How will it help first home buyers?

Angus Kidman 10 May 2017

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New measures to allow saving at lower tax rates through salary sacrifice for your deposit explained.

What's changing?

The big housing affordability measure in the 2017 budget is the introduction of the First Home Super Saver Scheme. This allows people to make additional contributions to their super at a lower tax rate than they would otherwise pay, and then to withdraw those contributions. (Earlier rumours suggested home buyers might be allowed to draw on their regular super savings, but that isn't the case.)

Other measures being introduced include allowing people aged 65 or over to contribute up to $300,000 from the sale of their home into their super fund (which in theory might convince them to sell larger houses and downsize, creating a bigger pool of property for home buyers); introducing a 50% cap on foreign ownership in new developments; and charging foreign investors a $5,000 fee per year if they don't make their properties available for rent for at least 6 months in that year. However, the First Home Super Saver scheme is likely to make the most immediate difference to people looking to enter the property market.

FULL GUIDE: How Budget 2017 will affect you

How does the First Home Super Saver scheme work?

You can make voluntary contributions into your super fund for the purposes of saving for a home deposit, up to $15,000 per year and up to $30,000 in total. Those contributions will be taxed at 15% (which is almost certainly likely to be lower than your effective tax rate). If you're a salaried employer, you can arrange for this to happen through salary sacrifice, to ensure you're paying the lower rate right away.

When you want to withdraw the money for a deposit, it will be taxed at marginal tax rates, minus a 30% offset. Note, you can only withdraw contributions identified as part of the scheme, and the "deemed earnings" on those contributions; you can't touch your super otherwise.

Even with those two taxes, that's likely to be a more effective strategy than saving in a traditional bank account, especially given current lower interest rates. Government estimates suggest this will typically boost the amount of deposit saved by 30%. "This is due to the concessional tax treatment and the higher rate of earnings often realised within superannuation," the announcement notes.

First home super saver scheme graphic

Who will this affect?

The new scheme could be beneficial for anyone saving for a first home. Subsequent home purchases aren't eligible. If you're already making voluntary contributions to your super, note that the overall cap of $25,000 a year for all voluntary contributions still remains; if you put $15,000 into your super for your deposit, you'll only be able to put $10,000 in as a top-up for your long-term superannuation during that year.

This won't necessarily get you a whole deposit, however. In capital cities, $30,000 (or $60,000 for a couple) still might not comprise the 20% deposit you'll want to accumulate to avoid expensive lenders mortgage insurance in many markets, so you'll need to save outside the scheme as well.

When will the changes happen?

Assuming it is passed by Parliament, the First Home Super Saver Scheme will apply from 1 July 2017. Withdrawals will be allowed from 1 July 2018 for use as a home deposit.

The rules impacting foreign investment apply from the announcement of the budget, for any new development sales or applications after that date.

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16 Responses

  1. Default Gravatar
    JjAugust 2, 2017

    Hi there,

    If my partner and I purchase a land-home package now but the land wont be registered in August 2018, meanwhile we are contributing extra money to our superannuation fund till July 2018, do you think we are eligible for this scheme?

    Thanks.

    • Default Gravatar
      JonathanAugust 5, 2017

      Hello Jj,

      Thank you for your inquiry.

      The eligibility draft provides that you may apply to have your savings released if you are 18 years or older, you have not used the FHSSS before, and you have never owned real property in Australia. This means that if you have owned an investment property, commercial property or vacant land you would not be eligible to use the FHSSS. The FHSSS is intended to help people who are not already in the property market.

      You can read more about that in this page.

      Hope this helps.

      Cheers,
      Jonathan

  2. Default Gravatar
    JessJune 7, 2017

    Thanks for your explanation on this new scheme. My question is if I already have salary sacrifice say $50 per fortnight to top up my super, get super from my employer plus deciding to do a salary sacrifice for a home. Should I be changing my existing salary sacrifice amount to what I want to sacrifice for the home or does the ATO differentiate what is sacrificed for home vs topping up super vs employer contributions or are they one whole amount?

    • Default Gravatar
      JonathanJune 8, 2017

      Hi Jess!

      Thanks for the comment.

      ATO classifies your salary sacrifice as follows:
      1. Fringe benefit (car, property, loan repayments, etc) this will be included on your payment summary at the end of the year as ‘fringe benefits’, which is part of your income test section of your tax return that may affect tax offsets and government payments (Centrelink, Child Support Agency).
      2. For Superannuation, it will be classed as concessional contributions. This will be reported on your payment summary as reportable super contributions that will be used for income testing.
      3. Your salary-sacrifice contribution is counted towards your employer contributions.

      If you need further information, you may contact ATO at 13 28 66 or speak to your accountant or adviser.

      Hope this helps.

      Cheers,
      Jonathan

  3. Default Gravatar
    TomJune 5, 2017

    Has this passed the Parliament or is it still being considered? What happens if it doesn’t pass before 1 July 2017?

  4. Default Gravatar
    BrentonMay 11, 2017

    Hi,

    Given that an individual is required to pay super contribution tax and then also pay marginal tax, albeit at a reduced rate. It seems that this would be more tax payable than if the individual was to simply receive the earnings as taxable income and invest them elsewhere.

    Does this scheme purely rely on the anticipated higher returns one would receive from their super fund as opposed to the return on their money from a traditional savings fund?

    If so, this seems a bit flaky.

    • Staff
      MayMay 17, 2017Staff

      Hi Brenton,

      Thank you for your comment and honest feedback.

      The government’s new First Home Super Saver Scheme is specifically designed to help those who are looking at buying their first home using their super fund which is taxed at a lower rate (contribution and marginal taxes). The government believed though that these taxes are likely to be more effective versus saving your funds in a bank with variable “lower” interest rates.

      Although if you think that this scheme may not be able to meet your expected maximum return (after being taxed at a lower rate), you are actually not confined to find other ways of saving/investing your super funds in any other financial products. You’d be best to speak to a financial planner/advisor who can provide you with strategies on how you can manage your super.

      Cheers,
      May

  5. Default Gravatar
    HALO1May 10, 2017

    Will people 65/or over introducing 300,000 into their super have to pay contributions Tax @15% on the way in, and deeming rate reductions if they are getting a pension, on the way out???

    • Staff
      LouMay 15, 2017Staff

      Hi Halo,

      Thanks for your question.

      Kindly not that under the First Home Super Saver Scheme, you can only contribute up to $30,000 in total using the scheme, but the maximum for each year is only $15,000. Contributions are subject to tax of 15%.

      In regards to deeming rate, this type of rate applies to all pensioners. The rate that you will get will not depend on whether you are getting a pension or not, but on the amount of your investment. You can check this page for more information on deeming rates.

      Cheers,
      Anndy

  6. Default Gravatar
    RobMay 10, 2017

    For a couple, if one partner has previously taken advantage of a First Home Owners Grant, but the other has not, is the second partner going to be eligible for this First Home Super Saver scheme?

    • Staff
      LouMay 10, 2017Staff

      Hi Rob,

      Thanks for your question.

      To be eligible to receive FHOG, you or your spouse, partner or co-purchaser may not have claimed the grant previously.

      Cheers,
      Anndy

    • Default Gravatar
      bpMay 13, 2017

      So can husband and wife both get first home buyers grant if they purchase 2 seperate properties with their own seperate names? I mean husband buys one property just in his name and wife buys other just in her name?

    • Staff
      LouMay 14, 2017Staff

      Hi BP,

      Thanks for getting back.

      The general rule to receive FHOG is that you or your spouse, partner or co-purchaser may not have claimed the grant previously. This means that regardless who apply for FHOG, your spouse should have not yet claimed the grant before. Kindly note also that generally, the spouse must be included on the application—either as an applicant or non-applicant spouse.

      As the eligibility criteria to receive the grant differ from one state to another, you may have to visit your local agency that handles grants to confirm you eligibility.

      Cheers,
      Anndy

  7. Default Gravatar
    StephenMay 10, 2017

    Hi, I have a question about the First Home Super Saver Scheme. My wife and I have been saving for a deposit for a couple of years now and we are looking to buy our first home within the next 6 months. Say we both take advantage of the First Home Super Saver Scheme by making additional contributions into our super of $15,000 each over the next financial year. Then lets assume we buy our first home in December this year. What happens in this scenario? We cannot access the additional super contributions until July 2018, and even when we can it needs to be used for a deposit on a first home. Do we need to wait until after July 2018 to purchase our home in order to take advantage of the scheme? Any advice is appreciated.
    Thanks,
    Stephen

    • Staff
      MayMay 17, 2017Staff

      Hi Stephen,

      Thank you for your question and for contacting finder.com.au – we are a financial comparison website and general information service we are not mortgage specialists so we can only offer general advice.

      Unfortunately, with the First Home Super Saver Scheme, there are no signs that you will be able to access the funds if you will buy your first home before the withdrawals period starts which is on 1 July 2018. So yes, if you can, best to wait until July 2018 so you can take advantage of this benefit.

      Cheers,
      May

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