If you’re earning over $250,000 per year, you might think the First Home Super Saver Scheme (FHSSS) doesn’t apply to you. However, this scheme could be an excellent opportunity for helping your family members—especially the younger generation—get into the property market by saving for their first home deposit.
Whether it’s your children, nieces, nephews, or other family members, the FHSSS provides a tax-efficient way for them to save within their superannuation fund. Here’s how you can encourage and guide them to take advantage of this opportunity.
What is the FHSSS?
The First Home Super Saver Scheme (FHSSS) allows first-time home buyers to save for their home deposit within their superannuation fund. These contributions receive favourable tax treatment, allowing savings to grow faster than in a regular bank account.
Why This is Perfect for Family Members
While you might already be a property owner and earning a high income, your family members could benefit significantly from this scheme. Encouraging them to save through their superannuation while they’re in lower income tax brackets could help them accumulate a home deposit more quickly and efficiently. Here are some of the main benefits:
Key Benefits of the FHSSS for First-Time Buyers
- Tax Advantages
- Concessional Contributions: These are made from pre-tax income and taxed at just 15%, much lower than most income tax rates.
- Voluntary Contributions: After-tax contributions are not taxed again within the super fund. Plus, they may be eligible for a tax deduction.
- Contribution Limits
- Annual Contribution Limits: Each individual can contribute up to $15,000 per year under the FHSSS.
- Lifetime Contribution Limit: The total amount that can be saved under the FHSSS is capped at $50,000.
How You Can Encourage Family Members to Use the FHSSS
By educating your children or other family members about the FHSSS, you can help them take advantage of its benefits:
- Faster Savings: Concessional contributions are taxed at only 15%, meaning savings grow faster than in a typical savings account.
- Tax Savings: By making concessional contributions through salary sacrifice, they can reduce their taxable income and save on taxes.
- Flexibility: Whether they prefer salary sacrifice or after-tax contributions, they can choose the best option for their financial situation.
Example: Salary Sacrifice for First-Time Buyers
Let’s take an example where your family member earns $100,000 per year. If they salary sacrifice $12,000 into their super, their taxable income drops to $88,000. This results in approximately $3,900 in tax savings while simultaneously building their home deposit.
Here’s how the numbers break down:
- Tax before salary sacrifice: AUD $22,967
- Tax after salary sacrifice: AUD $19,067
- Tax savings: AUD $3,900
By contributing to their super via salary sacrifice, not only are they reducing their taxable income and paying less tax, but they are also able to boost their savings faster thanks to the lower 15% tax rate on concessional contributions.
Joint Savings: An Even Bigger Advantage for Couples
The FHSSS allows each individual to save up to $50,000. If they’re purchasing a home with a partner, they can combine their savings, potentially saving up to $100,000 for their deposit. This is a huge advantage for young couples trying to get into the property market.
Salary Sacrifice vs. After-Tax Contributions: What’s Better?
Both salary sacrifice and after-tax contributions have similar tax benefits. However, salary sacrifice immediately reduces taxable income, which can be a helpful strategy for those looking to save on taxes in the current year.
For example, if your family member is earning $100,000, sacrificing $12,000 into their super reduces their taxable income to $88,000, leading to significant tax savings, as we saw in the previous example. The decision between salary sacrifice and after-tax contributions depends on their financial discipline and savings preferences.
Use This Tool to Show the Benefits
To help them understand the tax savings potential, encourage them to use this Salary Sacrifice Calculator. It’s an excellent way to visualise the financial benefits of making super contributions through salary sacrifice.
A Helping Hand for the Next Generation
As a high-income earner, helping your family members understand and take advantage of the First Home Super Saver Scheme (FHSSS) is a great way to assist them on their journey toward homeownership. Not only does the scheme offer tax-efficient savings, but it also empowers young people to save smarter and faster.
Encouraging your children or other relatives to contribute to their super now could set them up for long-term success, allowing them to enter the property market earlier than they thought possible.