Budget 2017: Accessing super for a house deposit

The government has announced that it will allow future voluntary contributions (note: this does not include employer superannuation guarantee contributions) to superannuation to be withdrawn for a first home buyer's deposit. Under the proposal you will be able to contribute $15,000 in a year with up to $30,000 (plus any earnings) in total that can be draw out for a deposit.

The major incentive to contribute to superannuation is that it is concessionally taxed. Compared to a marginal tax rate of between 19% and 45% plus the (increased) Medicare levy you only pay tax at 15% in superannuation. This means that if you were to contribute $15,000 to super concessionally rather than pay tax personally you would have the following:

This is all well and good and even better for when you can access your superannuation after 60 without paying any tax. Unfortunately for those wanting to buy a house who are not over the age of 60 the government is far less generous with their tax concessions. When you take the funds out of super you will be taxed on this as income at your marginal tax rate less a 30% offset.

As this is just a whole bunch of numbers I have prepared a very simple case study.

  1. You contributed $15,000 after 1 July 2017 (this earns 8% over the next 12 months)

  2. In July 2018 you contribute another $15,000 at which point you take it and the money you contributed last year (as well as its earnings) out and buy a house

The benefit of this strategy would look like this:

Assuming you are borrowing 80% of the property price this government initiative to increase housing affordability would allow you to borrow to buy your first house, an additional:

I'm not one to bemoan plans to improve housing affordability but from speaking to young clients trying to buy their first home, the ability to borrow an additional $21-28,000 isn't going to make this task significantly easier.

If you would like to read more about this proposal it can be found on page 30 of budget paper no 2 or alternatively you can always contact me for a more personalised conversation.

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