Should my kids use their superannuation to buy their first home? October 12th, 2023
My son and his partner are engineering FIFO workers in their late 20’s who with bonuses and other payments, earn about $170,000 each.
I was interested in something mentioned by you previously about using superannuation as a deposit for their first home, although they want to know more about accessing the money before they start redirecting some of their income to super.
Can I get my question answered?
FHSS Eligibility and Contribution Limits
The First Home Super Saver Scheme or FHSS is a reasonably complicated arrangement that allows first home-buyers to use additional super contributions to fund the deposit on their first home.
Only voluntary contributions can be used this way, not compulsory super and users are limited to their annual contribution caps which would include the maximum FHSS contribution amount of $15,000 per year up to a $50,000 maximum.
FHSS Deemed Earnings and Crediting Rate
They can both use it so potentially, the maximum amount they could access as couple is $100,000 plus the deemed earnings. The deemed crediting rate is tied to the ATO’s Shortfall Interest Charge or SIC and set quarterly. Currently, the SIC is 6.9 percent per annum.
The government does not pay this amount to your account, it comes from your fund’s earnings or capital.
For example, if the super fund actually earned 7.9 percent for the year, they would be “ahead” by 1 percent with the extra 1 percent in earnings, left in the fund for their retirement.
Funding Their First Home
To access the FHSS funds, they would need to follow a two-step process and should start the process before they sign any contracts for their new home.
Step 1 - Apply for a determination, ideally through the Tax Office application accessed through the MyGov portal. In many cases, the FHSS data from their super-fund will be pre-filled, but they will need to check that all of the FHSS contributions they wish to access are shown.
Step 2 - Once the determination has been made, they can apply to have the funds released. This usually takes between 15 -20 business days and then within 28 days of signing the contract, they should notify the ATO of the date and the address of their home.
Types of FHSS Contributions
Contributions to the FHSS can be either non-concessional, where no tax deduction is claimed or concessional, where someone claims a tax deduction. The full value of non-concessional contributions are invested and when accessed, are not included in your assessable income.
Concessional contributions on the other hand, are subject to at least 15 percent contributions tax. That means for example a $10,000 concessional contribution will end up as a $8,500 contribution after tax.
Taxation on FHSS Payout
When they access the money for their home, the concessional contributions plus the earnings will be assessable income and subject to tax at their marginal tax rate. However, they will receive a 30 percent tax offset or credit. At $170,000 per annum for example, their marginal tax rate including Medicare levy is 39 percent.
With the 30 percent offset available, the taxable part of their FHSS payout would be subject to tax of 9 percent and generally, that’s withheld by the ATO.
Superannuation contributions and tax are explained in Netplan Session 3