First Home Super Saver Scheme

How does the scheme work?

The First Home Super Saver Scheme (FHSSS) allows you to voluntarily contribute up to $30,000 to your super and withdraw this amount to buy your first home. Voluntary contributions include before-tax contributions and after-tax contributions. Saving through your super means any interest earned is taxed at the concessional superfund rate of 15%, meaning you pay less tax than saving outside of super. This in turn will allow you accumulate and grow your deposit balance far more efficiently. If you’re a couple, you may double the super saver scheme so the amount you save to is $60,000. From 1 July 2017 you can make additional voluntary concessional (before-tax) and non-concessional (after-tax) contributions into your fund. From 1 July 2018 you can apply to release your voluntary contributions, along with associated earnings. However, you must meet the eligibility requirements.

Eligibility

To qualify for the first home super saver scheme there are certain criteria that must be met:

1. Be over the age of 18;
2. Have not previously owned property in Australia, unless the Australian Taxation Office (ATO) deems you have suffered financial hardship;
3. Live or intend to live in the premises you are buying as soon as practicable after purchase, or live in the property for at least six months of the first 12 months you own it;
4. Only use the scheme once, which means you can only make one withdrawal from super, to be used as a deposit for your home.

Contribution Cap

Contributions are capped at $15,000 per year up to a lifetime cap of $30,000 per person. For example, if you contribute $20,000 in a year, only $15,000 will be counted towards the scheme. The balance cannot be withdrawn until you meet a condition of release (usually retiring). Your contributions plus any your employer makes must be equal to or less then the annual contribution limits. For the 2019-2020 financial year is $25,000 concessional (before tax, including employer) and $100,000 for non-concessional (after-tax) contributions.

Concessional contributions may entitle you to claim a tax deduction for the amount contributed. Non-concessional are personal contributions with after tax money. No tax deduction can be claimed.

How to apply for the First Home Super Saver Scheme?

In order to apply for the first home super saver scheme, you must apply to the Commissioner of Taxation (the ATO) for a first home super saver determination and release. You can do this via your myGov account when you are ready to withdraw funds. Once the determination is granted you can apply for a release of the savings. The ATO will issue a release authority to your super fund/s, who will send the requested release amounts to the ATO. The ATO will withhold the appropriate amount of tax and offset against any outstanding Commonwealth debts. These commonwealth debts can include income tax debt, activity statement debt, Centrelink debt and child support agency debts. The ATO will then send the remaining balance to you. From then you have 12 months to buy a new home. The ATO must be notified within 28 days once the contract is signed. If this does not happen; you will be subject to additional tax on the released funds.

What happens if you are unsuccessful in buying a house?

If you don’t sign a contract to purchase or build a home within 12 months of accessing your FHSS contributions, you can either:

• Apply for an extension of 12 months from the ATO;
• Re-contribute the money into your super; or
• Keep the money, but it will be subject to an additional flat tax rate equal to 20% of the assessable FHSS released amount.

The FHSS is not suitable for everyone however it can provide a helping hand to those saving long term to buy their first home via the concessional rate of tax on any income earned. If you have any further enquiries, please not hesitate to contact GeersSullivan on (08) 9316 7000.

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LMITO – Where’s my extra $1,080 promised by Prime Minister Scott Morrison?

Leading up to our recent federal election there was a great hype around changes to our tax system, none more enticing than the promise that every day Australians could expect to receive an additional $1,080 back from their next tax return through the introduction of the Low and Middle Income Tax Offset (LMITO). 

A tax offset does not operate like a deduction, which most people are more familiar with. A deduction is used to reduce your assessable income (total wages, interest, dividends received, etc.) down to your taxable income. Which is the amount your tax bill (payable) for the year is derived from. A tax offset is applied as a reduction to your tax payable, meaning that, per dollar, it is more effective at reducing your tax position.  

Unfortunately, this promise was without reference to some of the grittier details which stripped back how many people would actually receive the full value of this extra offset.  

The offset operates in addition to the Low Income Tax Offset (LITO), which has been in place since 1993. The maximum offset available through LITO is $445, this applies if your taxable income is $37,000 or less. The offset however diminishes at $0.015 for every $1 your taxable income is over $37,000. Meaning it is fully depleted once your taxable income reaches $66,667.  

Now with the new LMITO in place there is an extra offset available up to the value of $1,080 for taxpayers. It, like LITO operates on a sliding scale, but with multiple tiers added to its application. The first tier is for individuals with a taxable income less than $37,000, who will receive an extra $255 tax offset. The second tier is for taxable incomes between $37,000 and $48,000, who receive an offset of $255 plus $0.075 for every dollar their taxable income is over $37,000, up to $48,000, where you will be entitled to the full $1,080 tax offset. The full value of the offset is then held through the third tier up to a taxable income of $90,000, meaning that if your taxable income is between $48,000 to $90,000 you are entitled to the full $1,080 tax offset. However, once your taxable income exceeds $90,000 your offset entitlement is diminished by $0.03 of every extra dollar of taxable income, up until a taxable income of $126,000, when the offset has been completely diminished.  

There are some drawbacks however, the offset is “non-refundable” meaning that if you don’t use the full value of your entitlement it’s not available as a straight up cash refundable amount. This would only occur if application of the offset reduced your taxable income to $0.00. Do remember that if you have another outstanding debt with the ATO or any Australian Government agency the ATO is required by law to remit your now larger refund toward these debts.  

If you have any further questions regarding this new item please be in touch with your accountant at GeersSullivan on (08) 9316 7000. 

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