During the recent federal election, the Morrison Government (with the bi-partisan support of the Labor Party) announced the ‘First Home Loan Deposit Scheme’ for first home buyers. This scheme is designed to make it easier for first home buyers to get their foot in the door of the property market, and will accompany the existing ‘First Home Super Saver Scheme’ and for those living in NSW, the ‘First Home Owner Grant Scheme’.
So how do these schemes work, who is eligible and are they worthwhile? Read on to find out:
First Home Loan Deposit Scheme
The First Home Loan Deposit Scheme is set to be introduced on January 1st 2020, and will be available to first home buyers with an income of up to $125,000 (or $200,000 for a couple). Eligible buyers will now only need to save 5% for a deposit on their first home. The government will then guarantee their loan up to 20%. This has 2 key benefits for first home buyers:
Some things to consider
First Home Super Saver Scheme (FHSSS)
The FHSS Scheme allows you to save for your first home inside your superannuation fund, taking advantage of the concessionally taxed superannuation environment. Under the scheme, individuals can contribute up to $15,000 each financial year, up to a total of $30,000 across all years (since 2017), into their super funds as a concessional (or pre-tax) contribution. Couples can contribute up to $30,000 each year, up to a total of $60,000 across all years.
When you are ready to purchase your first home, you can apply to release these contributions, along with any associated earnings, to assist you with your purchase.
Who is eligible?
To qualify for the scheme, you must:
How does it work?
When purchasing your property, you can apply to have a maximum of $15,000 of your voluntary contributions from any one financial year released under the FHSS scheme, up to a total of $30,000 across all years (for couples – $30,000 per year with a total of $60,000 across all years). You will also receive an amount of earnings that relate to those contributions.
When you contribute into your fund, the contributions are taxed at the super tax rate of 15%. Once the monies are released from your fund for the purpose of purchasing a property, you will pay your marginal tax rate. However, you will receive a 30% tax rebate resulting in an overall tax saving.
Example
Andrew earns $60,000 per year and wants to buy his first home. He has saved $100,000 for a deposit. Andrew receives some advice that he should utilise the FHSS Scheme. He considers whether the scheme is worthwhile.
Let us consider 2 scenarios. In Scenario A, Andrew does not use the scheme. In Scenario B, he does.
Scenario A:
Andrew earns $60,000 (before tax) each year. He decides that he would like to save $15,000 (before tax) of his earnings each year over 2 years. At his marginal tax rate, he pays 32.5% tax on this $30,000. Total tax payable is $9,750 leaving him with $20,250 for his deposit.
Scenario B:
Andrew contributes the $30,000 into his super fund over 2 financial years as concessional contributions (either through salary sacrifice or personal contributions). He is taxed at 15%, leaving $25,500 available for withdrawal. When he withdraws the funds, he is taxed at his marginal rate of 32.5% ($8,288). However, he also receives a 30% tax rebate ($7,650). Consequently, the net tax paid upon the withdrawal of the funds is only $638. This leaves Andrew with $24,862 for his deposit.
Therefore, after utilising the scheme, Andrew is $4,612 better off.
Some things to consider
First Home Owners Grant (New Homes) Scheme
In NSW, if you are a first home buyer and you’re buying or building a new home, you may qualify for a $10,000 grant under the First Home Owners Grant Scheme. To apply for the grant, you need to lodge an application form either:
Who is eligible?
To qualify for the scheme, you (or your spouse) must:
or
Some things to consider
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