Tuesday, February 6, 2018

Red flags with the First Home Super Saver Scheme

One of the stand out, under-whelming pieces of legislation to come out of the last budget was the First Home Super Saver Scheme (FHSSS), which was voted into law in December 2017. In my humble, and cynical, opinion it a political ploy to appeal to those who are hit hardest by the lack of housing affordability, but I wouldn't even give it band-aid status. It is a smoke screen at best, and I suspect that the reason that it hasn't received the fanfare of the First Home Saver Account Scheme (pulled by the Abbott Government for "poor uptake") is that the current Government knows the FHSSS's shortcomings and doesn't want egg on it's face.

So, let's get to it. Here are the rules:
1.   You must be 18 years old, and never held an interest in any real property in Australia (including investment property, commercial property, lease of land, and certain mining rights). This is an individual test, meaning if your partner has previously held an interest, it won't have any effect on your eligibility.
2.   Eligible Contributions made from the 2017/2018 financial year, plus any associated earnings (equal to the shortfall interest charge - currently 4.72%) can be released under the FHSSS, and cannot be released until 1 July 2018.
3.   Released eligible contributions are limited to a maximum of $15,000 in any one financial year, and $30,000 total limit.
4.   Eligible voluntary contributions that can be released include 100% of voluntary non-concessional contributions (post-tax), and 85% of voluntary concessional contributions (salary sacrifice).
5.   You must enter a contract to purchase an existing dwelling, or construct a new home within 12 months, with a further 12 month extension available on application.

So far it sounds fairly straightforward, right? "Ah ha!" she says, with a self-satisfied gleam in her eye, "the devil, as they say, is in the detail." Here are the red flags that so many of the general populace are not aware of, and may not consider before using the FHSSS:
  • Eligible contributions do not include; mandated contributions, which are your Superannuation Guarantee, as well as those covered by an award or industrial agreement (sorry, State Employees - this means you) or superannuation fund rules, spouse contributions, Government co-contributions and low income super offsets, CGT cap contributions, personal injury contributions, excess non-concessional and concessional contributions, child contributions.
  • Contributions cannot be released if they are made to a defined benefit, or constitutionally protected fund.
  • How will the lenders view the FHSSS - do they consider it genuine savings?
  • What is your current marginal tax rate? Is it appropriate to salary sacrifice and pay the 15% contributions tax, or is your marginal tax rate less than that?
  • Can you afford to do this? If you are not already saving for a house deposit on a regular basis, then this scheme is not going to help you as you can only get out the extra that you put in.
  • Is this appropriate? Once the funds are in the Super system you cannot get them out. This means that if you have been putting extra voluntary contributions into your superannuation, instead of a savings account, and you lose your job, or you crash your car, or life just happens, you cannot access those funds.
  • Will the Government change it's mind? After all, there is a significant administrative burden on the ATO to administer this Scheme, and the last Scheme was axed in response to budget pressure.
So, how is the average person going to tackle sourcing all of this information to make an informed decision about whether or not this will work for them? They will need to check affordability with a mortgage broker as well as identify potential lender requirements. Then they will need to see a financial planner to work out the concessional vs. non-concessional contributions, investigate the current award and superannuation fund rules to identify the mandated contributions, work out cash flow, as well as the contingency plans if life happens and the client cannot access their savings. This all costs money of course, so I predict that there will be a lot of do-it-yourselfers who will lean on other professionals in the house purchasing industry for guidance.

And what of these professionals involved in the house purchasing industry? If I were a Real Estate Agent, or a Conveyancer, or even a Mortgage Broker, I would be incredibly cautious about entering into conversations with First Home Buyers in regards to this Scheme. Identifying what does not constitute a mandated contribution is complex, but if you send the First Home Buyer to get a FHSS determination by the ATO, this could backfire because once the determination is issued, the First Home Buyer will lose their tax deduction if they haven't already submitted their Notice of Intent to Claim a Tax Deduction for their contributions. Be wary, and don't get caught out inadvertently giving unlicensed financial advice, because this area is a lawsuit waiting to happen.

Find Erin* at Achieveit Financial Planning, or call for an appointment on 07 4638 5011.
*Authorised Representative of Securitor Financial Group Ltd ABN 48 009 189 495 AFSL 240687

This is general information only and does not consider your personal circumstances. You should not act on any recommendation without obtaining professional advice specific to your circumstances. We recommend you speak to a financial adviser before acting on any of the information you read on this website.

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