Can I use my super to boost my home deposit?

Can I use my super to boost my home deposit?

Erin Delahunty - 14 Jul, 2021

Housing affordability remains a hot topic in Australia right now, as the property market continues to experience price increases well above the average of recent years.

Real estate market analytics company CoreLogic reported in May that dwelling values have risen well above average and that first-home buyer activity is declining.

CoreLogic found national dwelling values rose 1.8% in April this year alone, six times the average monthly increase for the previous decade.

This trajectory has those wanting to get onto the property ladder wondering how they can do it. Often, the question of using existing superannuation to boost a deposit for a home arises.

While it’s not as simple as taking out super and giving it to the bank, there is a way for first-time buyers to make their hard-earned super work for them. It’s called the First Home Super Saver Scheme, which is a Federal Government program.

It can potentially help these buyers achieve home ownership by letting them save for a deposit inside their super fund.

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What is the First Home Super Saver Scheme (FHSSS)?

The First Home Super Saver Scheme (FHSSS) was introduced in the 2017/18 federal budget as an additional support for first-home buyers, by allowing them to save for a deposit inside their superannuation fund.

The stated aim of the scheme at the time was to help first-time buyers in a housing market that was becoming increasingly harder to crack into, as it continues to be today.

The scheme uses the concessional tax treatment of superannuation as an easier and faster way first-home buyers to save a deposit, bypassing the usual restrictions on making early withdrawals from super.

Of course, the FHSSS does have its limits, but one of the biggest factors to keep in mind, among many others, is you can only withdraw voluntary contributions to use for the scheme.

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How does the First Home Super Saver Scheme (FHSSS) work?

The FHSSS essentially allows you to save for your home deposit faster by utilising the concessional tax treatment afforded to super savings.

Eligible participants could make voluntary contributions to their super fund, with the intention of using them for their deposit, then apply to the tax office to have them released when they want to buy.

The scheme allows for voluntary contributions of up to $15,000 per person each financial year, then a withdrawal of up to a maximum of $30,000 of those contributions when they want to purchase property.

You can always check your balances with your super fund to see how close you are to these limits and help you determine when you’re ready to withdraw them.

In addition, you can also withdraw any earnings from these contributions made during their time in the super fund, however, they’re subject to tax.

As with any government scheme, there are limits on its parameters and eligibility, so let’s take a look at some of the key ones.

  • You must immediately, or as soon as possible, live in the property you’re building or purchasing.
  • You must intend to live in the property for at least six months of the first year of owning it.
  • The property must be residential.
  • You must be at least 18 years old at the time you make the application to release funds.
  • You must never have owned property in Australia and the property you’re purchasing or building must be in Australia.
  • You must not have used the scheme before.
  • The scheme only applies to voluntary contributions made since July 1, 2017.

What counts as a voluntary super contribution?

Voluntary contributions are classed as any contributions you make yourself to your super fund. That means they don’t include compulsory contributions made by your employer under the government’s superannuation guarantee or contributions made by other people on your behalf.

Voluntary contributions fall under two categories: voluntary concessional contributions and voluntary non-concessional contributions.

Concessional contributions are those that are made as part of a salary sacrificing arrangement you may have with your employer, where they set aside part of your income to transfer to a nominated super fund before it’s taxed. In this case, the contribution is taxed at 15% in your super fund.

Non-concessional contributions are those using income that has already been taxed or for which you’ve not yet claimed a tax deduction.

The scheme allows you to withdraw 100% of your eligible concessional contributions, while you can withdraw up to 85% of your eligible non-concessional contributions.

How does the scheme benefit first-home buyers?

The scheme was designed to help first-home buyers by allowing them to save their home deposits faster by taking advantage of the general tax concessions applied to super funds. Your savings under FHSSS can grow faster because they are not taxed like other income.

Non-concessional contributions withdrawn as part of the scheme are not subject to additional tax, while concessional contributions attract a 15% tax once withdrawn, but you can claim deductions for these contributions against your taxable income.

Keep in mind though, tax is still applicable to any earnings your contributions attracted before you withdraw.

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How do I withdraw contributions under the First Home Super Saver Scheme (FHSSS)?

Once you’re ready to withdraw the funds, you’ll need to apply to the ATO to find out exactly which contributions you’re eligible to withdraw and then for a release of the funds.

This means the ATO will check that the contributions you’re applying to withdraw are voluntary ones and not such other types as superannuation guarantee contributions from your employer or contributions made by other people, such as your partner or family members.

Something to keep in mind here is that you can pool the withdrawal you have made under the scheme with those from other people who are also eligible for the FHSSS, so you can purchase a property with them together, e.g. a partner.

Once you’ve received a determination on how much you could withdraw under the FHSSS, and assuming it’s what you were expecting, you’re then allowed to sign a contract for the purchase, or beginning of construction, of a property.

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What else should I be aware of?

It’s important to check with your super fund if they will allow contributions to be made under the FHSSS.

Check with your fund if they will release the money and also ask them about any fees and insurance implications from using the scheme.

Not all employers offer salary sacrificing either, so you may have to make voluntary non-concessional contributions, meaning you’ll only be able to withdraw 85% of those contributions, also keeping in mind the $30,000 cap.

In many cases, the amount you could save under the FHSSS will probably not be enough to cover a full deposit.

Weigh this up against the ability to save a deposit faster, as well as possibly providing a larger deposit than if you had saved in other ways. This could reduce costs in such areas as Lender’s Mortgage Insurance and reduce the overall cost of your loan, or even help push you over the line to providing a full deposit if you combine it with other savings.

Check with your super fund what contribution limits exist. Any contributions you make under the FHSSS will be applied toward your overall annual contribution cap, they’re not separate from this calculation.

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Will the First Home Super Saver Scheme (FHSSS) work for me?

In many cases, the FHSSS won’t cover the entire deposit you need, but can provide you with an option that can let you save up to $30,000 of a deposit faster than if you had used most other options.

You should always carefully consider your circumstances, but eligible participants can use the FHSSS to get to a $30,000 deposit, then perhaps approach a bank for Lender’s Mortgage Insurance, which will cover the risk of the lower deposit.

While this option gets you into the market quickly, it will mean your loan will be more expensive in the long run. This, however, might be outweighed by the savings you make getting into the market sooner. That’s why it’s vital to do your research.

The scheme could also be used as a way of saving some of your deposit while you use other options to save the rest, using the FHSSS withdrawal to lighten your tax burden.

Always keep in mind that everyone’s circumstances are different, so it can be advisable to get guidance from a financial professional before taking the next step. You can also visit the FHSSS site for more information.

Can I buy a property with a self-managed super fund home loan? 

In short, yes. Self-managed super fund (SMSF) home loans are used to purchase investment property for the benefit of all the members of the super fund.

There are some complexities around these loans, such as all rental income or capital gains must be transferred back into the fund and can’t be dispersed as a pre-retirement benefit for any members.

The property must also be used for investment purposes, so fund members can’t reside in the property.

To find out more about these loans, our guide to SMSF home loans will help you navigate all the rules and regulations.

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Words by Erin Delahunty

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