Financial Advice Blog

First home buyers have two weeks to score a $12,000 tax break

First home buyers could score an extra $12,000 to put towards a deposit by taking up a scheme advisers and brokers describe as lucrative but underutilised – but only if they act fast.

Financial Spectrum’s Brenton Tong was interviewed for this article by Lucy Dean at Australian Financial Review.  You can view the original article here.

First home buyers could score an extra $12,000 to put towards a deposit by taking up a scheme advisers and brokers describe as lucrative but underutilised – but only if they act fast.

In the 2023 financial year, the Australian Taxation Office released funds to 8,700 people under the government’s First Home Super Saver Scheme, down from 9,500 in the 2022 financial year, and 9,900 the year before.

The scheme works by allowing first home buyers to make up to $15,000 in additional concessional super contributions a year, up to a total of $50,000, and withdraw it to use to purchase a home. The idea is that because super contributions are taxed at 15 per cent, rather than income tax which can be as high as 45 per cent, savers can essentially quarantine a portion of their earnings away from a higher tax rate.

Advisers and brokers say the First Home Super Saver Scheme is underused.

Financial adviser Brenton Tong, of Financial Spectrum, believes uptake is still below where it should be because he believes every single first home buyer should be using the scheme. “It is free money, essentially,” he says.

According to the Commonwealth Super Scheme’s First Home Super Saver calculator, a borrower earning $100,000 who put $30,000 into super using the scheme over two financial years would have $25,455 after tax. If they had paid tax on that $30,000 at their marginal rates, they would have only $19,637.

That’s a tax saving of $5819. If their partner, who was earning the same, followed the same strategy, together they would save $11,638 on tax.

To achieve this, borrowers need to make super contributions before the end of this financial year, and another tranche in the next financial year. And they need to act fast, says Tong.

“To put the money in, it’s just by the end of financial year. However, each super fund will have their own cut-off, so you’re best to check with each fund,” he says.

“As a rule, we try and get all our super contributions done by mid-June. Australia’s biggest super fund, Australian Super, has a cut-off of June 21.”

Once you’ve put the money in, you must notify your super fund so it can report the concessional contribution to the ATO and you can claim your deduction, as you would have paid tax at a higher marginal rate than the concessional rate.

“A personal deductible contribution is a 100 per cent tax-deductible contribution to your super fund – so a $15,000 last-minute contribution to your super would result in a $15,000 tax deduction in your tax return for the financial year,” Tong says.

“However, make sure that you can put that much in – if you’re a higher income earner, you might already be putting the maximum into super, so if you put too much in, you may go over your limit [and pay higher taxes].”

While the scheme can be a powerful means of turbocharging a deposit, brokers and advisers say it is too complex, and borrowers are concerned about falling foul of the Tax Office.

Michael Ryan, wealth adviser at BDO, says would-be buyers with a longer time horizon should consider making the most of the total scheme, rather than only using it for two years, but the scheme is too complex for many borrowers.

“Young people are generally already disengaged with superannuation and there isn’t a lot of publicity around the scheme. It is fairly complicated, so that can immediately put people off as being too difficult,” he says.

“There can be a perception that their hard-earned savings could be locked up, or they could end up being worse off if they don’t end up buying a home in time.”

Mortgage broker Aidan Hartley says it “makes absolute sense” to use the scheme as it effectively drops a borrower’s marginal tax rate from between 32 per cent and 47 per cent to as low as around 15 to 16 per cent, depending on their marginal tax rate.

“You’re already saving a huge chunk of funds there,” he says. “But are many people using it? Very few. My whole business is first home buyers, and I’d say only one in five or one in 10 are using it. It’s really not used as much as it should be.”

 

 

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