May 16, 2017
The 2017 budget was relatively quiet on the superannuation front compared to the raft of changes announced in the 2016 budget (many of which are coming into play on 1 July of this year).
One of the interesting announcements made on last Tuesday night's Budget was the First Home Super Scheme. This scheme has been designed to help first home buyers reach their dream of buying their first home via voluntary contributions to their superannuation fund.
Individuals will be able to contribute up to $15,000 per year up to a total of $30,000 into their superannuation funds. Contributions can either be pre-tax (concessional contributions) or post tax (non-concessional contributions). Assuming the individual makes pre-tax contributions, they will reduce their taxable income however they will attract the usual 15% contributions tax within their super fund.
When the funds are required for the purchase of the first home they can be withdrawn from the superannuation fund. Tax will apply at the individual’s marginal tax rate less a 30% tax offset for those that made pre-tax concessional contributions.
Once in the superannuation environment there will be an assumed rate of return on the contributions which will be based on the 90-day bank bill rate plus 3%. This will apply even if the investments within the superannuation fund has a negative return over the relevant period.
So, let’s look at an individual who earns $70,000 and is able to contribute the full $15,000pa for 2 years into their superannuation and compared this to if they were to place the funds into a savings account earning 2%pa. Their deposit would be $5,802 more if they were to contribute to super over the savings account.
If this individual had a partner who was also a first home buyer and earned the same amount of money, their combined deposit would be $11,604 more than if they used a savings account.
It must be noted that if the individual changes their mind about purchasing their first home and they have contributed their savings to their superannuation fund, their money will not be accessible for other purposes and will remain in the superannuation fund until retirement.