Finance Your Budget How to use your superannuation to save for a home deposit

How to use your superannuation to save for a home deposit

The First Home Super Saver Scheme can speed up the deposit-saving process. Photo: TND
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Question 1: My daughter who is 21 years old has $20,000 in a six-month term deposit which is due in December. She wants to invest it, but not sure how or where. I advised her to put it in her super but she is saving it for the future to buy her own place. She is currently in her third year at university doing a double degree.

Your daughter’s investment time frame is very important when making an investment decision. If she intends to buy a home within the next few years, then generally it’s best to take a conservative approach and stay with investments like a term deposit so as to ensure the funds do not go backwards.

The longer the investment time frame, the more aggressive she can be with her investments.

With shares, for example, the recommended time frame would be seven years to ensure she stays invested for a full investment cycle and doesn’t require the funds to be withdrawn when markets are down.

However, your advice to put the funds in super, and her objective of using the funds to buy a home, could be achieved via the First Home Super Saver Scheme (FHSSS).

The scheme allows people to release voluntary super contributions (up to certain limits) plus their associated earnings for the purchase or construction of a first home.

A contract to buy or build a new home must be entered into within 12 months (or up to 24 months if an extension is granted) for the funds to be released under the FHSSS.

To be eligible, you must have never held an interest in any property in Australia, including land, rental or commercial properties; and you can only use the scheme once.

You can access up to $15,000 of voluntary contributions in any one financial year and $30,000 across all financial years.

Eligible contributions can include after-tax non-concessional contributions or concessional (salary sacrifice or tax-deductible) contributions – but not employer SG contributions.

The government has proposed to increase the maximum cap to $50,000 but has yet to legislate this change.

The main reason anyone would save for a home via the FHSSS is to potentially save on tax, as funds going into super, as well as their earnings, are taxed at concessional rates.

In the financial year that the request to release an amount is made, the applicant includes the assessable released amount in assessable income in their personal income tax return (the assessable released amount is taxed at personal marginal tax rates) and a 30 per cent non-refundable tax offset applies.

Any non-concessional contributions released from the super fund are effectively received tax free.

Therefore, this strategy would only be applicable if your daughter is currently, or will soon, be earning a reasonable income and paying income tax.

If her income tax rate is above 15 per cent, the use of the FHSSS could be very beneficial to help her save a deposit on a first home.

The scheme is administered via the ATO, which has more information available on its website, and your superannuation fund should be able to provide you with more information and advice.

Question 2: I’m nearly 60 and my fixed-term contract expires in a few months. Would I be eligible for JobSeeker, rather than being required to withdraw my super to live on?

In a worst-case scenario where I don’t ever get another job and am not entitled to the government pension for another seven years, could I actually receive JobSeeker for seven years? Is there a mutual obligation for over-60s to apply for a specific number of jobs each week to continue to receive JobSeeker?

Yes, you may be eligible for the JobSeeker (formerly called Newstart) income support payment.

Superannuation is not counted under the JobSeeker income or asset test while you are under the age pension age and the funds are left in the accumulation stage of super.

There is no requirement to use these funds first.

However, the following waiting periods exist:

Ordinary Waiting Period

This is just one week and applies to most people.

Liquid Assets Test

If you have other money besides your super, such as in bank accounts or shares, then you may have to serve a longer waiting period.

The exact wait will depend on how much you have, with the maximum being 13 weeks.

If you have $5500, it’s a one-week waiting period. If you have $11,500 or more, then it’s 13 weeks (you can have double these amounts if you have a partner).

Income Maintenance Period

If you get paid out a redundancy or annual leave when you leave a job, then this waiting period also applies. For example, if you get paid out five weeks’ leave, you have to wait five weeks before getting a payment.

It can be served concurrently with the liquid assets test waiting period above.

You must also meet mutual obligation requirements to continue receiving JobSeeker.

These will be listed on your ‘Job Plan’ and generally require performing 30 hours of approved activities per fortnight, including:

  • Attending appointments with your employment services provider
  • Completing and reporting your job searches
  • Accepting any offer of suitable paid work.

However, if you are over the age of 60, the mutual obligation requirements are generally less strenuous, and you can meet your obligations by doing approved voluntary work if you cannot or do not want to work in a paid job.

Craig Sankey is a licensed financial adviser and head of Technical Services & Advice Enablement at Industry Fund Services

Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.

Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives. 

The New Daily is owned by Industry Super Holdings