De­posits get a boost

Ev­ery bit helps the first-time home buyer – even $6240

Money Magazine Australia - - SUPER -

Ev­ery­one knows first home buy­ers are do­ing it tough. Soar­ing prop­erty prices, sav­ings ac­counts that of­fer pal­try re­turns and low wages growth mean their ef­forts to get a de­posit to­gether is a challenge. The new First Home Su­per Saver Scheme of­fers some help.

The fed­eral gov­ern­ment says the scheme, launched on July 1, will boost the sav­ings for a home de­posit “by at least 30% com­pared with sav­ing through a stan­dard de­posit ac­count”. At the time of writ­ing the leg­is­la­tion was yet to be passed.

The scheme boost comes via tax breaks and a deemed earn­ings rate. The catch is you can only save up to a to­tal of $30,000. That’s small bick­ies when you con­sider the high price of prop­erty. Still, ev­ery bit counts. As with all things su­per, rules and re­stric­tions ap­ply.

For starters, if you don’t buy a home the sav­ings must be left in your su­per un­til you re­tire. Should you marry some­one who al­ready owns a house, your sav­ings still have to stay in su­per in­stead of re­duc­ing the mort­gage.

There are also lim­i­ta­tions on how much you can save each year. While you can make be­fore-tax con­tri­bu­tions of up to $15,000 a year, you nev­er­the­less can­not ex­ceed the an­nual $25,000 su­per con­ces­sional con­tri­bu­tions cap, which in­cludes your em­ployer’s 9.5%.

So where’s the ben­e­fit?

The deemed earn­ings rate is based on the 90-day bank bill rate plus three per­cent­age points – dou­ble that of sav­ings ac­counts. While con­tri­bu­tions and earn­ings are taxed at 15%, with­drawals are taxed at your mar­ginal rate less a 30% off­set.

As the case study (see box) and graph show, some­one earn­ing $60,000 a year and con­tribut­ing $30,000 over three years could save $6240 more in the home scheme than in a stan­dard sav­ings ac­count. (The deemed rate is 4.78% com­pared with 2% for a sav­ings ac­count.)

The scheme is ad­min­is­tered by the tax of­fice, which will de­ter­mine the amount of con­tri­bu­tions that can be re­leased and in­struct su­per funds to make the pay­ments.

If your su­per fund re­turns are higher than the deemed rate, the sur­plus re­mains in your ac­count. If the fund’s re­turns are lower, the dif­fer­ence is made up from your ac­count. The deemed rate gives savers’ earn­ings cer­tainty and makes it eas­ier for su­per funds to man­age.

In­di­vid­u­als who are self-em­ployed or whose em­ploy­ers don’t of­fer salary sac­ri­fice can claim a tax de­duc­tion on per­sonal con­tri­bu­tions, mean­ing sav­ings in ef­fect come out of pre-tax in­come.

How much you ben­e­fit comes down to your per­sonal cir­cum­stances. “If you’re on the top mar­ginal rate you get a nice kicker,” says Claire Mackay from Quan­tum Fi­nan­cial. “But you’re not go­ing to be able to put much in be­cause if you’re on the top mar­ginal rate your su­per guar­an­tee [9.5%] is go­ing to be pretty close to the max­i­mum the com­pany has to make.”

Even if the ben­e­fit is fairly mar­ginal it might be a con­ve­nient way to save, says Mackay. “It’s a com­bi­na­tion of know­ing your­self, know­ing your own strengths and weak­nesses, and do­ing the num­bers to see what’s the best out­come. For a lot of peo­ple, salary sac­ri­fic­ing means your em­ployer’s pay­roll is look­ing af­ter it for you. You don’t have think about it. It’s en­forced sav­ings.”

To work out your sav­ings go to bud­get. gov.au/es­ti­ma­tor.

Vita Palestrant was ed­i­tor of the Money sec­tion of The Syd­ney Morn­ing Herald and The Age. She has worked on ma­jor news­pa­pers over­seas.

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