How to make the most of the First Home Super Saver Scheme

Well the First Home Super Saver Scheme is about to reach the point where we could see our first withdrawals from superannuation as a deposit for a house. However, I don't think there'll be too many happening as I don't believe there's been a huge uptake so far. Which is a shame as it will be a really great tool for building a house deposit for first home buyers. Who doesn't like free money from the government (free money as in just paying less tax)?

So, how big is the benefit and how do you work it to maximise the benefit?

Well, firstly, someone who right now who has a deposit, or part of a deposit saved, they can immediately use those funds to make a tax deductible contribution to superannuation (which they can later withdrawal for their deposit), and then get a large tax refund when they do their tax return and in total boost their deposit by a couple of thousand $'s over a very short space of time.

Example (someone on the 34.5% marginal tax rate):
Contribute $15,000 to superannuation. Tax on entry is 15%, so net contribution is $12,750.
Then on withdrawal, they will pay tax at their marginal tax rate, less a 30% tax offset, so essentially 4.5% of $12,750 = $573.75 so the net withdrawal is $12,176.25.

BUT!!

You've got a tax deduction of $15,000, so you'll get $5,175 back in your tax return which means you've essentially turned $15,000 into $17,351 over the space of a couple of months. If you've got $30,000 saved as a deposit now and a spouse on the same tax rate as you, you can't boost your deposit by $4,700 pretty easily over a short space of time.

So, how to you maximise the benefit of the FHSSS?

Well, there are a number of points:

• The cap is $15,000 per year (per person) and $30,000 (per person) in total. So use it! For both you and your spouse. If 2 people put in $15,000 each per year for 2 years, they'll be able to boost their deposit by over $9,000 above what they would otherwise have.
• If you don't have any deposit at the moment but want to build one, ask your employer to salary sacrifice. If you can spare $100/week, then remember to gross that up to a pre tax amount, so that would be roughly $150/week salary sacrifice. Then it's gone before you get your pay. You'll very soon not even notice it's missing.
• If you haven't been salary sacrificing all year and want to use the scheme, then make a lump sum tax deductible contribution to super. Otherwise, it's probably best to just salary sacrifice to superannuation as you get the tax benefits immediately rather than waiting for a big tax refund.
• For a lot of first home buyers, they generally have less than 20% deposit so they need to pay Lenders Mortgage Insurance which is a complete was of money for you and protects they bank (but you pay), so every extra bit of deposit reduces this cost. So take an extra month, 2 months, 12 months to maximise the benefit of the scheme which also minimises your LMI. A double free kick.
• When you withdrawal the funds, the money is added to your taxable income (and a 30% offset applied), so if your income sits near the top of a tax bracket, the withdrawal could push you into the next marginal tax rate, reducing the benefit of the scheme - so if that applies to you - try to do the withdrawal in the same year you are making the contributions so your taxable income that year is lower

Example: If someone earns $80,000, then when they contribute, they are getting a deduction at the 34.5% marginal tax rate. But, if they make a $20,000 withdrawal in a financial year which they haven't made any tax deductible contributions to super, then $7,000 will be taxed at 4.5% (34.5% less the 30% offset) and $13,000 will be taxed at 9% (39% less 30% tax offset) which would reduce the benefit of the scheme by $585. What they would be better off doing is timing it so they apply and make the withdrawal in the same year they've salary sacrificed at least $13,000 so their taxable income is low enough so they aren't pushed into the higher tax bracket on the withdrawal. The way that would work in practice would be that you salary sacrifice the $13,000 between say July and December, then in January apply for your determination and release, withdrawal the funds between January and June, then purchase your house.

Remember though, there is a limit to the scheme of $15,000 per annum. And you always need to keep your concessional contributions under the cap of $25,000. So if your employer's superannuation contributions are more than $10,000 per annum, then you won't be able to fully utilise the $15,000 per annum so it will take more than 2 financial years to fully utilise the scheme.

Glenn Hilber is a Certified Financial Planner with over 10 years experience and the owner of Precision Wealth Management.

This represents general information only. Before making any financial or investment decisions, we recommend you consult a financial planner to take into account your personal investment objectives, financial situation and individual needs.