White Picket Fence
By Sheila Murray
Are you thinking about buying your first home?
With the recent changes to superannuation you may be able to use your superannuation to save for a deposit to make the dream of owning your own home a reality. Read on to learn about the First Home Saver Scheme.
How does it work?
From 1 July 2018, you will be able to apply to withdraw additional voluntary superannuation contributions you made after 1 July 2017 to your super fund for the purchase of your first home.
How much can I withdraw from my super?
You can only withdraw up to $15,000 of the annual amount of additional voluntary super contributions you made each year, with an overall maximum withdrawal allowed of $30,000 of gross contributions per member plus capped net earnings. The amount you can withdraw will also depend on whether or not you claimed a tax deduction when making the contribution.
For example: example:
If you have put in $30,000 (non-concessional) extra over at least 2 years (no more than $15,000 per year), and have not claimed a tax deduction, you may be able to withdraw $30,000 plus earnings.
If you have put in $30,000 (concessional) extra over at least 2 years (no more than $15,000 per year) , and claimed a tax deduction, then the amount you can withdraw could be approx $25,000 (depending on your individual tax rate and including earnings).
Why would you choose to contribute to super instead of saving in an ordinary bank account?
You might get tax savings of up to $5,000 (or possibly more the longer you leave your contributions in super and depending on your marginal tax rate) – but be careful, conditions apply! Try the government calculator at http://budget.gov.au/estimator/ to estimate the deposit you can withdraw.
Depending on your marginal tax rate the amount you could withdraw from super could be slightly higher by making concessional contributions than if you were to put aside savings in to a bank account. If you need help calculating the benefit with your own personal circumstances please let us know.
As your savings are only accessible if you buy a home, this might prevent you impulsively spending your savings elsewhere.
Your parents and grandparents might be happy to contribute on your behalf, knowing that the amount might go towards to your first home deposit or your retirement savings.
If you are a beneficiary of a family trust, then your parents may choose to distribute income to you which you can use to make extra personal concessional super contributions and reduce the family’s tax bills.
When to be careful:
You need to check with your super fund to make sure they will accept additional contributions under the First Home Saver Scheme.
It may take longer to withdraw your savings from super than from a standard savings account. Check with your super fund how long your contributions must remain in the fund before they can be withdrawn. The Australian Taxation Office say they will process in 12 days, but your super fund may take longer!
Make sure you actually claim a tax deduction for your super contributions on your tax return if you have told your super fund that you are making a claim.
Make sure you tell your super fund whether you are going to claim a tax deduction. Make sure you make your claim in time, before you lodge your tax return, and before you withdraw or rollover any funds.
Make sure you know the effect of any tax when you withdraw your tax deductible super contributions.
If you don’t buy a home, your savings might be locked away in super until you retire, or you can choose to pay an additional flat tax of 20% on the amount withdrawn.
If you are not confident that your employer will pay your super on time, it’s best not to arrange a salary sacrifice. Instead you can make personal contributions and wait for your tax refund until the end of the year, or apply to reduce your PAYG tax.
While you are looking at your super, review any life insurance premiums and the investment option you have chosen. Be aware that some investment options may have negative returns and may not return as much as the capped earnings rate of 4.73%.
If you are earning over $100,000, you need to be careful to include the amount of super your employer contributes for you, in working out the maximum super you can salary sacrifice or personally contribute. The maximum tax deductible super including your employer contributions is $25,000 per annum.
Is it worth the hassle?
The scheme is not overly generous, and the traps and the hassle may put off many would be participants. However, if you already have savings this year (or have generous parents or grandparents who would like to contribute for you), and are contemplating a first home purchase, it is worth contacting your super fund and your accountant to discuss if the First Home Savers Scheme is for you.
Downsizing contributions into superannuation
By Sheila Murray
Are you over 65 and selling your home?
Another recent change to superannuation now enables you to top up your superannuation when you sell your home.
How does it work?
From 1 July 2018, if you are over 65, you may be able to choose to make a downsizer contribution into your superannuation of up to $300,000 per member from the proceeds of selling your home, provided you have owned your home for at least 10 years.
Conditions apply
The exchange of contracts for the sale must occur on or after 1 July 2018 and the contribution must be made within 90 days of receiving the proceeds. Your downsizer contribution will not count towards your contributions caps or be affected by the total superannuation balance test in the year you make it. However, it will count towards your total super balance and transfer balance cap, currently set at $1.6 million, after you have made the contribution. Downsizer contributions are not tax deductible and will be taken into account for determining eligibility for the age pension.
Pros
Income from super can be tax free
Can be used to get money into super when you don’t pass the work test, even if your total super balance is more than $1.6million
Can be used to inject funds to your existing SMSF, when your SMSF has insufficient funds to meet your existing pension obligations
Cons
By selling your home and downsizing, you could be worse off taking into account the assets test for the age pension
If you don’t have super already and you expect your income after downsizing to be less than $58,000 (for a couple), then there is very little to be had in the way of tax savings by contributing to super, instead of investing personally
Superannuation is complex
We pay tribute to our beloved friend, Christine Hueppauff
It is with great sadness we inform you our dear friend, Christine Hueppauff, passed away unexpectedly on Thursday 1st March 2018.
Christine was a valued member of our superannuation team for the past 7 years. Christine was well-loved and admired for her zest for life and her quick wit. She will be greatly missed.
Our heart goes out to Christine’s family.
A coffee with...
By Brendan Taylor
Our "Coffee With ..." this month features the humble and inspiring history of Norm and Edith White.
Read their story here.
