First Home Super Saver Scheme. What is it and what is the benefit?

We are sure you’ve by now read the Government’s latest idea to give First Home Buyers a leg up.

The First Home Super Saver Scheme will allow first home buyers to save for a deposit by making voluntary pre-tax contributions to super. Contributions from 1 July 2017 will be eligible and limited to $15,000pa (and up to a total of $30,000). Withdrawals can be made from 1 July 2018.

But what does this actually mean in real terms??

Take Kevin – he earns $70,000pa and he’s pumped up to buy his first house.

Young Kev decides this new strategy suits his circumstances perfectly, and makes sure he starts salary sacrificing. He salary sacrifices $10,000, and his super fund has an additional $8,500 (after 15% contribution tax).

Had he taken that same $10,000 as income, he would have been taxed at his marginal rate of 32.5% plus Medicare, and been left with only $6,550.

OK, so there is a saving there – but what about the interest it earns?

While the money is invested in super, the Government doesn’t want to have to calculate the exact earning on every contribution, so they just assume 3% plus the current bank bill rate (4.78% total).

Considering earnings on term deposits and savings accounts are closer to 2.00%, this is another small benefit for home buyers.

Finally, when Kevin decides to withdraw his benefit, he’ll get hit with an exit tax (this is set at 30% below his marginal rate).

So – after all that – is Kevin better off?

Kevin is better off by $1,719 after 12 months. This amount increases to $6,210 after 3 years assuming Kev puts away $10,000 for another 2 years.

And – if Kevin’s partner Jessica puts away the same amount, over the same time period (assuming the same marginal tax rate), they are $12,420 better off than they would be without the First Home Super Saver Scheme. Pretty handy for Kevin and Jessica and much better than earning 2% in a normal bank account.

Will it allow Kevin to buy something he couldn’t afford beforehand? Probably not.

Will it fix all the problems with house prices for young Australians? No.

But it’s another small benefit for First Home Buyers to employ as they battle the wars of affordability!