Super saver scheme offers small leg-up on to the property ladder

Coupling the new first-home buyer’s federal scheme with existing state grants and savings just might be a winner.

A welcome boost for younger Australians looking to crack into the elusive housing market will apply from July 1. For those who have previously struggled to cobble together enough money for a home deposit, this week’s federal budget might just get them over the line.

The First Home Super Saver Scheme allows first-home buyers to salary sacrifice up to $15,000 per year of their wages into superannuation and accumulate up to $30,000 within a super account that can be withdrawn for the sole purpose of purchasing a home to live in.

The benefit — if you’re on $50,000 per year income for example, rather than pay tax at 34.5 per cent marginal tax rates, you can salary sacrifice up to $15,000 per year into super which is only taxed at 15 per cent. When you purchase a property, the money is released from super and, although included as personal taxable income, there is a 30 per cent tax offset which cancels out most of the tax when withdrawing the money.

At it’s best the scheme will make young people save. Aspiring Sydney homeowner Jackson Olah says the changes are beneficial and will help him buy a home sooner.

“As the salary sacrificed money into the savings scheme is taken from my wages before it goes into my bank account, it’s almost like a forced saving plan which will make it easy for me to stick to and build a house deposit quicker” he suggests.

Normal super contribution caps apply so it is worth noting that from July 1 the pre-tax contribution cap reduces to $25,000 per year for everyone. What this means is that even though you can contribute up to $15,000 per year into the First Home Super Saver Scheme, you need to factor in employer contributions to ensure that you do not breach the $25,000 cap.

In other words, employees who receive 9.5 per cent mandatory super contribution must earn less than $105,263 in wages otherwise they may be hit with penalty tax if they contribute more than $15,000 into the First Home Super Saver Scheme.

For people who currently have savings and are wondering if they should live off this and start salary sacrificing more of their pay into super, Sydney financial planner Xavier Lo says: “Assuming they do not spend more on living expenses overall, on a pure tax basis, first-home buyers who earn more than $33,201 may benefit from salary sacrificing the $15,000 per year into the First Home Super Saver account. By paying less tax, they will be able to accumulate a home deposit quicker.”

Working the system

The scheme legislation is currently being developed so we can expect further clarification in coming weeks. What we do know is that the super savings scheme begins for contributions made after July 1 and withdrawals are only accessible after July 1, 2018.

One of the many questions that needs to be addressed is whether or not people who have previously purchased an investment property but have never lived in it will be eligible for the First Home Super Saver Scheme?

Nevertheless, given median house prices of $1,100,000 in Sydney and $825,000 in Melbourne, the new First Home Super Saver Scheme is not likely to be enough in itself for a first-home buyer to get into the market. Even for a $700,000 property, a 20 per cent deposit plus stamp duty requires genuine savings well in excess of $150,000, much more than the $30,000 that can be accessed via the new super saver scheme.

First-home buyers must continue to use a combination of strategies to buy into the market.

If you are a parent hoping that these changes will relieve a potential financial burden as your children get into the property market, think again. The bank of mum and dad will still be well alive but perhaps the smartest thing to do is to view the wider picture of family guarantees, private family loans and gifts of money required on top of the First Home Super Saver Scheme and particular state-based grants that may be available in your home state.

State-based grants to first- home buyers play an important role. In Victoria, for example, first-home buyers are eligible for a $10,000 grant that can be put towards the cost of building or buying a new residential property. The Victorian government has also announced a plan to provide first-home buyers with stamp duty exemptions on property purchases with a dutiable value of less than $600,000 and concessional stamp duty between $600,001 and $750,000.

NSW offers similar grants. The First Home Owner Grant Scheme provides a $10,000 grant on purchases of a new home valued under $750,000 and the First Home New Home Scheme provides purchasers with exemptions from stamp duty on new homes valued up to $550,000 and concessions on stamp duty for new homes between $550,000 and $650,000.

For many who thought that property ownership would never be a reality, the budget changes may keep the dream alive. $30,000 for an individual or $60,000 for a couple certainly helps people get closer to the required deposit for a first home but the old tricks of family guarantees and first home grants will still be in demand to help people get their first foot onto the property ladder.

James Gerrard is the principal and director of independently owned Sydney financial planning firm FinancialAdvisor.com.au.