Rising property prices can feel like an uphill battle. For many people, saving for your first home deposit is harder when trying to juggle everyday expenses while trying to save a significant amount. This is where the First Home Super Saver Scheme (FHSS) comes into play. A lot of Australians are using FHSS to help first-time buyers accelerate their savings through superannuation, the FHSS can make the dream of owning a home a reality sooner than you might think.
Read also: The Ultimate Guide to Home Loan Applications
Understanding the First Home Super Saver Scheme (FHSS)
The First Home Super Saver Scheme allows you to make voluntary contributions to your superannuation fund, which you can later withdraw to use as a deposit for your first home. These contributions can be either pre-tax (salary sacrifice) or post-tax (voluntary contributions), offering a tax-effective way to save.
Here’s an example of FHSSS:
Jack, a 30-year-old software developer in Rockhampton, earns $70,000 per year. He dreams of buying his first home but has struggled to save enough for a deposit. Jack decides to leverage the First Home Super Saver Scheme (FHSSS) to speed up his savings.
Jack arranges with his employer to make voluntary before-tax contributions of $12,000 per year to his superannuation fund. This amounts to $1,000 per month from his salary before taxes. Because these contributions are pre-tax, they reduce his taxable income, thereby lowering his annual tax liability.
Although $12,000 is deducted from his gross pay, Jack’s take-home pay only decreases by approximately $8,400 annually or $700 per month, due to the tax savings from his reduced taxable income.
With the FHSSS, Jack benefits from both the lower tax rate on super contributions and the compounding growth within his super fund. Over three years, Jack saves $36,000 in contributions. Thanks to the FHSSS’s tax advantages and earnings on his super, Jack ends up with an estimated $39,000 for his home deposit.
This means that Jack’s savings will grow faster than they would in a regular savings account, giving him a substantial boost towards his first home purchase.
In order to use FHSS like Jack, you must be at least 18 years old and a first-time home buyer who plans to live in the property. You can contribute up to $15,000 per financial year and a maximum of $50,000 in total. For couples, this means potentially saving up to $100,000 combined.
The tax benefits are significant. Contributions made through the FHSSS are taxed at the concessional rate of 15%, which is generally lower than your income tax rate. When you withdraw these funds, they are taxed at your marginal rate minus a 30% tax offset, making it a tax-effective way to save for your deposit.
Read also: How Your Employment Status Affects Your Mortgage Approval?
Getting Started
To get started, you need to set up salary sacrifice with your employer or make voluntary contributions to your super fund. Ensure your super fund supports FHSSS contributions. Then, apply for an FHSS determination from the Australian Taxation Office (ATO), which will tell you how much you can withdraw. Once you have the determination, you can request the release of funds from the ATO. This process typically takes 15-20 business days.
Tax Implications
Understanding the tax implications is important. Contributions are taxed at 15%, while withdrawals are taxed at your marginal rate with a 30% tax offset. This can result in significant tax savings compared to saving outside of superannuation.
Practical Considerations
When planning to use the FHSSS, consider the impact of property prices in Queensland. Rising property prices may affect the amount you need for a deposit. Working with a local expert like Finance First in Rockhampton can provide valuable insights into the regional market and help you plan effectively.
Common Mistakes to Avoid
Avoid exceeding the annual and total contribution caps to prevent additional tax penalties. Plan your home purchase carefully to ensure you can use the withdrawn funds within the required timeframe. Misunderstanding tax implications can also lead to unexpected costs, so thorough planning and consultation with an expert are recommended.
Conclusion
If you’re a first-time home buyer in Rockhampton, securing a mortgage can be tough. The First Home Super Saver Scheme (FHSSS) can help you save for a deposit faster, but understanding how to use it and finding the right mortgage can be confusing.
If you’re a first-time home buyer in Rockhampton looking to use the First Home Super Saver Scheme, consider Finance First your premier mortgage broker. We make the mortgage application process smooth and hassle-free.
John MacMaster, a Rockhampton mortgage broker with over 25 years of experience, offers services from consultation to final approval, handling paperwork, negotiating with lenders, and ensuring all requirements are met. Finance First has access to numerous lending products to get the best deal for clients and is dedicated to their property success in Rockhampton.