Use your super to buy a home

Using your super to save toward a deposit for your first home can be a great way to speed your progress in what is becoming a difficult goal for many Australians.

“Using the first home super saver scheme you can save up to $50,000 for your deposit. That means two people could save $100,000. That’s a big step toward, if not all, the amount you could need,” says smartMonday senior smartCoach Patrick Howard.

The unique advantage of using your super is simple: you contribute from your before-tax salary to add to your super, with those contributions (up to a limit) usually taxed at 15%. At that rate you’re paying less than even the lowest payable income tax rate of 16%.

“What it means is that you can save more of your deposit through super compared with almost any other way,” says Howard.

“And while that money is in your super it could be earning investment returns. Associated earnings will be included in the total amount you can withdraw when the time comes.”

There are a few rules to the scheme which can make it sound complex, so it’s worth understanding how it works.

1. Only your voluntary contributions to super can be later withdrawn for your deposit. Your employer’s contributions cannot be used. You can contribute up to $15,000 each year that will count toward your home deposit savings.

2. Up to $30,000 in contributions can be made to your super each year at the 15% tax rate (these are known as concessional contributions and include what your employer pays). These contributions must be made from your before-tax salary (organised through your employer) or from your savings (claiming a tax deduction afterward). If you haven’t contributed up to the limit in the past few years you may be able to add those previous unused amounts also.

3. You can contribute beyond the $30,000 limit from your after-tax salary. (Known as non-concessional contributions. There’s no additional tax on these super contributions.) The limit on these contributions is $120,000 (or quite a bit more as you may be able to bring forward up to three years’ worth of contributions.)

4. In total, you can save and then withdraw $50,000 under this scheme, adding any investment returns on top of that.

“When it comes to saving from your salary, this has been designed to be a tax-effective way to do it. Over a few years you could also benefit from additional investment returns on top of your savings, which makes it a win-win,” says Howard.

“When you’re ready to take out your deposit money there’s some essential rules to be aware of. It’s particularly important to go to the tax office first so it can determine how much you can withdraw,” explains Howard.

• To use money from your super you must apply to the Australian Taxation Office for an official determination (which you can do through the MyGov portal), before signing any property contracts or applying for the super savings to be released to you.

• When you withdraw your savings under the scheme, they count toward your taxable income in the financial year you withdraw them. But that amount is eligible for a 30% tax offset when you lodge your return.

• To use the money you must be a first home buyer that has never owned property (unless financial hardship exemptions apply). You must buy a property within 12 months of requesting the withdrawal, and live in it, in Australia, for at least six months as soon as possible after you buy it.

There are a number of further issues to consider, such as letting the tax office know when you’ve purchased a property. Further detail can be found on the ATO first home super saver scheme webpage.

You can also speak to a smartMonday smartCoach, who are experts in guiding members in superannuation. This is a service your super fees already pay for.