Are you or is one of your children saving to buy a first home? The Government yesterday released a draft of its first home super saver scheme.

First home savers can contribute up to $30,000 into super on a withdrawable basis – up to $15,000 in any one year – provided the withdrawal is used to buy a first home. Super is normally otherwise ‘preserved’ in the fund until retirement.

The benefit?: mainly that the contribution is tax deductible. It is taxed on receipt by the super fund but for an average wage earner the net tax saving is 15% – that’s $2,250 for a $15,000 contribution and $4,500 for total withdrawable contributions of $30,000.

The contributions must be voluntary – so in addition to compulsory employer super contributions – but they can be by way of either salary sacrifice (further employer contributions you agree to have deducted from your pre-tax salary) or direct personal contribution. Since 1 July this year all employees have been able to make tax deductible payments to super funds themselves.

So you can withdraw your bank deposit and contribute it to super. Provided the paper-work is completed (a ‘notice of intent to deduct’) the payment will be fully tax deductible.

Tax on the earnings will also be 15% less in super – a comparatively small saving though (around $110 for earnings of 5% on $15,000). The earnings, at a deemed rate, are withdrawable as well.

There are limits and catches.

  • To obtain maximum benefit you need a salary (excluding compulsory employer super) between $52,000 and $105,000.
  • On a $35,000 salary the tax deduction would be worth only $900.
  • Earn more than $105,000 and your increasing compulsory employer super contributions (i.e., 9.5% of salary) reduce the additional voluntary contributions you can claim a tax deduction for – a combined $25,000 per annum cap applies.
  • You can make non-deductible contributions above the cap and tax on the earnings will still be 15% less – but that’s not the main game here.
  • You can’t withdraw until after 30 June next year, and not for an investment property.
  • You don’t qualify for the scheme if you already own Australian real estate. Even a residential property lease would disqualify you in the draft as written but presumably that will be corrected.
  • If you don’t spend the money withdrawn from super on buying a first home within (generally) 12 months you must recontribute it to super or pay another 20% tax. And you only get one shot – you can’t withdraw again for a later purchase.

The main catch though, is that the scheme is not yet law. Consultation on the draft ends next month.