First home super save-iour or just enough to savour?

Ordinary contribution rules remain applicable and any excess concessional and non-concessional amounts will not count towards the Scheme.

Importantly, these contributions are not made to a ‘special’ super account but are made to a client’s super fund. No additional notification requirements apply and the amounts are not separately identified by the super fund, rather the ATO will have reporting available to reconcile the total and types of voluntary contributions for each financial year.

Post-15 September 2024 rules

Eligible contributions made since 1 July 2017 can be withdrawn together with notional (not actual) earnings calculated using the applicable shortfall interest charge rate compounded daily. Contributions made during the 2017-18 financial year are deemed as made on 1 July 2017, otherwise on the first day of the month the contribution is received.

The maximum withdrawal amount will be calculated by the ATO consisting of up to 85 per cent of eligible concessional contributions (after 15 per cent tax on such contributions), 100 per cent of eligible non-concessional contributions, and their associated earnings. This is also where the $15,000 per financial year and $50,000 lifetime limits will apply to work out the maximum amount as well as the earnings.

Critically, there are steps that should be followed when accessing the Scheme funds. First, clients must apply for a determination from the ATO via their myGov before settlement of the relevant property purchase. Rules prior to 15 September 2024, required this to be before contracts were entered into for the property purchase. The determination will show the maximum release amount including the notional earnings. Multiple determinations can be requested.

Once the determination is received, release requests can be submitted via myGov up to 90 days (prior to recent changes this was 14 days) after entering a contract to purchase. However, don’t forget that settlement periods can range from 30 to 90 days, and clients will want to receive the net proceeds before this date. The whole process can take between 15 and 20 business days for the super fund to release the money and then for the ATO to on-pay the amount. Otherwise, clients are given up to 12 months from the release request to sign a contract which can be extended to 24 months.

The assessable portion of the withdrawal, any concessional contributions and associated earnings released, is taxed at the client’s marginal tax rate less a 30% offset. The ATO withholds tax based on the client’s expected marginal tax rate, but if they cannot estimate this they withhold 17% using the highest marginal tax rate less 30 per cent. Any outstanding debts with the ATO or Commonwealth Government will also be taken from the withdrawal.

Importantly, the assessable portion of the withdrawals are specifically excluded from several income measures:

Once the net amount is received and the client enters a contract to purchase their first home within the stipulated timeframes, the client needs to notify the ATO within 90 days of entering into the contract. They must also intend to occupy the premises for at least six months of the first 12 months after it is practicable to do so.

If the home is not purchased within the timeframe, the client must either recontribute the release amount less the withholding tax as a non-concessional contribution and will not be able to claim a deduction on this amount. Otherwise, they will be subject to an additional First Home Super Saver tax of 20 per cent of the assessable portion.

Part of the answer but there can be traps

Given the dollar limits on the Scheme, it is not intended to be a complete solution for first home buyers, but it can help with saving for their deposit by building savings within the concessional environment of super but then withdraw these funds earlier than retirement age.

Clients making voluntary concessional contributions may benefit from saving tax at their marginal tax rate while the contributions are taxed within super at 15 per cent (if Division 293 is not applicable). At withdrawal, the amounts will be taxed at their marginal tax rate but there is a 30 per cent offset, meaning the approximate net tax benefit on the withdrawal is 15 per cent if their marginal tax rate remains constant at contribution and withdrawal. This is an approximate because only 85 per cent of the original contribution is withdrawn and taxed, but notional earnings are also taxed.

While the funds sit within super the earnings will be taxed at 15 per cent compared to the client’s marginal tax rate if they accumulated these savings personally. While there are no statistics to show the proportion of first home buyers with HECS-HELP loans, these borrowers also benefit from the income returns being made within super rather than their personal name which could otherwise place them in a higher percentage HECS-HELP compulsory repayment bracket. This will not apply to just the increased income, but all income the client earns as it is a ‘total’ income rate although the government has recently proposed to change this to a marginal tax rate, however this would require amendments to the relevant legislation.

Example 1

Since 1 July 2018, Anastasia earns $65,000 per annum and wishes to save for a deposit for her first home. Her personal expenses total $40,000 per annum, and she has a large HECS-HELP loan making only the minimum required based on her income. She holds a sufficient emergency cash balance and wishes to commit any surplus net cashflow to attaining her goal.

At the end of the 2025-26 financial year, if the maximum release amount is withdrawn and the personal portfolio is redeemed, the amounts after-tax will be: