Saving For Your First Home

Dornbusch Partners helps you save for your first home

 

From 1 July 2017, you may be able to make voluntary superannuation contributions of up to $15,000 a year, and a maximum of $30,000 over more than one year, to your superannuation account for the purposes of purchasing a first home.

I say may as this is yet to be legislated by the Government.

Whilst the Federal Government is not actually making this strategy a no brainer as there are tax implications it is letting savings be made in an environment that you are unable to access except for the home deposit.

I have explained how this works in the paragraphs below and then crunched the numbers on a gross (including superannuation) wage of $60,000 per annum. Please note I am not a tax specialist and you should ultimately verify these figures with your Accountant.

 

Well let’s try to make the complicated uncomplicated.

 

The deposit is being saved as voluntary super contributions and will be before-tax contributions (concessional contributions), which means you will need to arrange with your employer to salary sacrifice the contributions into your fund, or if you are self-employed claim the super contributions as a tax deduction in your income tax return.

These contributions will reduce your taxable income so you pay less PAYG tax, however the first catch is that these contributions are taxed at 15% which is referred to as contributions tax.

The amount of earnings you are paid on these savings will be calculated using a deemed rate of return based on the 90day Bank Bill rate plus three percentage points so approx. 4.735% pa.

The second catch is that these earnings are taxed at 15%. Please note I have not included earnings in the calculations below.

The third catch is that when you have saved the $30,000 and you are looking to withdraw to purchase a home then those savings will be taxed at your marginal tax rates less a 30% tax offset.

 

So the sums:

 

Base case

Salary Sacrifice $15,000

Salary Sacrifice $10,000

Salary Sacrifice $7,500

Income

$60,000

$60,000

$60,000

$60,000

Taxable Income

$54,794

$39,794

$44,794

$47,294

Tax & Medicare

$10,273

$  4,873

$  6,673

$  7,573

Net pa

$44,521

$34,921

$38,121

$47,294

Net pw

$     856

$     671

$     733

$    764

Reduction in weekly income

 

$     185

$     123

$      92

So whilst $30,000 is contributed in 2 years take home pay has reduced by $185 per week and what level of reduction that is appropriate for you needs to be considered prior to committing to the level of savings.

As I previously mentioned the contributions are taxed at 15% which is $4,500 on savings of $30,000. This leaves $25,500 able to be accessed.

The third catch as mentioned above is that when accessing the funds as your home deposit that withdrawal from superannuation is taxed however taxed at a discount rate.

Unfortunately, as this proposal has not yet been legislated we assume that the tax is taken from the lump sum prior to payment to you.

This would see a tax payment of approx. $1,148 leaving $24,352 being available for your home deposit.

 

The small print says - If you (for whatever reason, move overseas) and do not end up buying a house, the extra contributed monies will be preserved in super.

Preservation means you will need to meet a retirement qualification to access the funds.

 

Government has provided the following estimator:

http://budget.gov.au/estimator/index.htm.

 

Summary:

Whilst the superannuation tax does have warts on it the fact that you have saved a reasonable deposit in an environment that wont let it be spent on anything else makes this strategy one worth giving serious consideration to.

Please don’t hesitate to contact our office if you would like to discuss any aspect further.