It’s the time of year when there is plenty in the financial press about ways to save money with superannuation before the end of June. One group of people who should be paying attention but may not be, are intending first home buyers.

The First Home Super Saver Scheme provides a very attractive opportunity for intending first home buyers to turn the money they have saved for a deposit so far into a considerably bigger sum.

They can contribute money to super, claim a tax deduction for it, receive a tax refund, then get most of the money back out again for their first home purchase. That gives them a larger total. The deposit can be used to buy a new or existing home in Australia.

There are rules that must be followed. First it should be noted that only voluntary super contributions can be accessed for the home deposit. Employer super guarantee contributions cannot be withdrawn.

Each person saving for a home deposit can make up to $15,000 of voluntary contributions per year and have that money count as part of the scheme. They can put in up to $50,000 over all years they contribute. That means a young couple could build up a deposit of $100,000 under the scheme.

Contributions can be by salary sacrifice each payday, or by lump sum. A lump sum could be the amount the intending buyers have saved for the deposit so far. If Mum and Dad or grandparents are prepared to help with the deposit that money can be added to the scheme and enlarged by it too.  

Let’s look at an example of how the scheme works. Suppose a young person has $15,000 saved, and like the majority of workers, has a marginal tax rate of 34.5 per cent including Medicare Levy.

They contribute the $15,000 to their super fund now, before June 30, and claim a tax deduction for it. That reduces their taxable income by $15,000, and so cuts their tax bill by $5,175. They should receive that as a tax refund.

The person then buys their first home. The $15,000 super contribution is taxed 15 per cent on entry to the fund, a cost of $2,250. The buyer can draw out $12,750 for their deposit. Add their tax refund and they have a total deposit of $17,925. That’s an uplift of almost one fifth on the original amount. 

If the intending home buyer uses the scheme over multiple years they will also be able to draw out earnings on their contributions, paid at a rate set by the Government. If they never buy a home the money must stay in their super fund until they retire.

Intending first home buyers should develop a plan to boost their home deposit savings now, in conjunction with family if they plan to contribute.