3 ways the First Home Super Saver Scheme can work to your advantage
The FHSS has been created to assist Australians with buying their first home – so how can it benefit you? We look at 3 ways it can help you purchase property
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It’s no secret that it’s tough to get on the property ladder in Australia, no matter where you live around the country. Rising interest rates, grossly inflated house prices and stagnant wage growth have all resulted in Australians having a tough time getting a peek in the door – let alone a foot in!
But creative solutions are emerging to try and help level the playing field. In 2017, the Australian Government launched the First Home Super Saver scheme (FHSS) to help people use their superannuation to save for their first home more effectively.
The FHSS lets you contribute up to $50,000 to your super fund to withdraw when you're ready to buy your first home.
So let's take a closer look at whether the FHSS is right for your needs, and some of the ways you can get the most out of it.
1. Saving for property in a tax-effective environment
One of the most-touted benefits of the FHSS is being able to save for your first home in a more tax-effective environment than through conventional high-interest accounts. In essence, it's a potential way to beat rising house prices.
The ATO helps manage the scheme. If you're eligible, you can make both voluntary pre-tax or after-tax contributions into your super, up to a maximum of $15,000 a year. You're then able to withdraw up to $50,000 in total (or $30,000 if you applied to get your money before July 1, 2022).
You'll need to keep track of your voluntary contributions so you know where you're up to. Some superannuation products, such as Spaceship Super, have a dedicated FHSS tracker so customers can see how close they are to reaching their first home savings goal.
Your speed in saving is influenced by a variety of factors, including the comparative tax paid on superannuation contributions and withdrawals versus your income tax. You may also benefit from keeping your home deposit savings separate from the rest of your money so you can't dip into it.
Although this can be quite beneficial for those with good income and saving habits, there are still pros and cons that need to be weighed up. It's worth seeking independent financial advice before deciding whether it's the right solution for you.
2. Purchasing joint property
One of the features that's often overlooked when it comes to the FHSS is the fact that multiple people can use the scheme to contribute to the same property, as long as they're each eligible.
However, there are a few factors to keep in mind. It's a good idea to find out if you're eligible before committing to the scheme, and the restrictions on the type of properties you can buy when using cash saved with the FHSS. For example, commercial properties are off-limits, and you can't have previously owned property in Australia. Additionally, you can't purchase housing like a houseboat or caravan.
Nonetheless, this can still be a great option for couples or families who are looking to buy a first home, but might not be able to do so individually. By combining your saving ability, you may be able to increase the cash you have available for putting a deposit down on a house or land.
3. Reducing your taxable income
Another reason the FHSS is appealing is that it may offer the opportunity to lower your overall taxable income. This is because you may be able to include voluntary contributions from your pre-tax income. In turn, you'll pay less tax when your pay hits your bank account, as there's less being paid directly to you.
You will need to pay some tax when you eventually withdraw these contributions – but the good news is that they're taxed at a lower rate than regular income tax. So in short – paying less tax means that you're able to save more easily for your first home!
Just keep in mind that there are annual super contributions limits and your FHSS contributions will count toward them. If you exceed them, you may need to pay more tax.
Weighing up your options
Opting to use the FHSS isn't a decision to be made lightly, and its appropriateness depends on your individual circumstances.
You might want to think about whether your current finances are in a positive situation to be able to save, or how committed you are to buying a home. This is because you generally won't be able to access the money if you change your mind -- and you'll only be able to apply for the FHSS once.
These are complex considerations, so researching thoroughly before you start saving is critical. Tools like the Spaceship app can provide you with additional information. It's also worth discussing your circumstances with a financial professional before committing to the FHSS for your own needs, too.
Sponsored by Spaceship Super - the Money Magazine Best Value Super Fund for Young People 2022. Get in touch today to find out more!
