The Federal Budget for 2017 promised to deliver assistance to housing affordability, but the facts are it has done zero / zip / nothing / (even) “bugger all”.
So, we have an announcement that prospective First Home Buyers will be permitted to Salary Sacrifice (save) up to $15,000 a year over a two-year period toward their Superannuation Fund and then withdraw this money to place a deposit on the purchase of a their first home.
The supposed benefits of this scheme are potentially twofold where
- The money is protected, and only released for the intended purpose, and
- The Superannuation Fund pays a flat 15% Tax on earnings in lieu of the individual tax rates at scalable levels.
Part a) clearly provides some incentive in regard to purpose, but let’s clearly outline the actual cash benefits of the offer.
Firstly, the average rate of PAYE tax to be equivalent of the fixed Superannuation Tax of 15% is $45,000 per annum. Therefore if you earn above this. There is some potential benefit for this scheme.
Secondly, Salary sacrificing to any level that reduces your salary below $45,000 per annum would be detrimental, therefore if you were to aim at a $15,000 per annum salary sacrifice you need to be earning above $60,000 per annum. Please take care here, many Employers will have limits on the amount available for salary sacrifice (this is based on Australian Tax Office guidelines) and a $15,000 sacrifice on a $60,000 salary, being 25% of total salary may be a breach of many employer agreements.
Further, the ability to Salary Sacrifice into Superannuation may not be a potential for many people as it can be dependent on any limitations that may be in your employer agreement. Therefore, many Enterprise Bargaining Agreements may prevent you from the ability to salary sacrifice into superannuation.
Third, let’s look at the benefit generated. If you are on a salary of $60,000 per annum and you are able to sacrifice $15,000 to your superannuation fund, your taxation liability will decrease from $12,147 to an amount of $6,747, a saving of $5,400 in year one. Your Superannuation Fund receiving the benefit will then pay 15% of $15,000 or $2,250, resulting in a net tax reduction of $3,150, or a maximum of $6,300 over the allowable two-year period (not so bad).
BUT, The Government wish you to believe this is a $30,000 benefit, however I feel we have just proven that the benefit is a maximum of $6,300, after all, it is your own money that you are saving. Now the big question,
“while you suddenly reduce your salary by $15,000 per year, Who pays the rent ?”
That’s. correct, in addition to this savings program, you still have to live. Gone will be the flexibility of taking a little this week and put it back next week. So how successful will this initiative really be ?. During the regime of the aborted First Home Saver Account Scheme, less than 50,000 accounts were opened nationally, I suggest the success of this scheme will be even less.
AND LET’S NOT FORGET, the previous scheme was offered without fees from the Deposit Taking Institutions. This new scheme will be offered by a Government forced offering onto the Superannuation Trustees and will come at a heavy administrative burden. Did I just see that $6,300 maximum advantage fall even further?
THE BOTTOM LINE, Mr Morrison went on record to say most first-home buyers would be able to “accelerate their savings by at least 30 per cent” due to the lower taxes. Well, my calculations of a $6,300 saving over two years is a 21% acceleration. I would be happy to have a public debate with our Treasurer on this matter.
WHERE TO FROM HERE, should you be in a position to permanently reduce your salary by $15,000 (or part thereof) then please have a detailed discussion with your Superannuation Trustee in regard to the administrative expense of running this additional account before making a commitment.
In the end, this may have benefit for the few, however it is a far cry from the housing affordability issue that it intended to address.