Low Tax First Home Saver Accounts
February 5th, 2008 | by winsonlee |This article is taken from the Official Website of the Australia Labor Party, dated February 05, 2008. Labor Government will help the first home buyers to achieve their dreams by establishing a new, law tax, First Home Saver Accounts. A couple with an average wage and saving 10% of their income are able to save a deposit of $64,000 over five years. This deposit is 30% more then the ordinary saving account. The fund in the account can only be accessed to purchase a home four years after the establishment of an account. Total contribution in each year is cap at $10,000. $5,000 will be apply to contributions made from pre-tax income each year and the remainder may only be after-tax contributions. This saving account works pretty much like a superannuation.
Case Study
Tax Rate
| A$30,001 - A$75,000 | $3,600 plus 30c for each $1 over $30,000 | 12% - 22.8 |
If you are earning $45,000 a year, your after tax income will be $36,900. If you are putting the maximum allow to the First Home Saver Accounts which is $5,000, your after tax income will be $33,400. $5,000 is tax at the rate of 15%. This means that you are saving ($33,400+$4250) = $37,650 / year which is $750 more.
Winson’s Thought:
Although this may sounds like a good deal as you will be getting 30% more then the ordinary deposit account but four years is not a time frame that I am willing to commit. 30% extra is within 5 years period. That means a year is only 6% more. The 30% extra is calculated base on average interest rate of 6%/annum. If any point of time you are getting 12% perannum, it will be better off not to put your cash in the FHSA.
A Rudd Labor Government will help aspiring first home buyers save a larger deposit by establishing new, low tax, First Home Saver Accounts.
Over the first three years Federal Labor’s First Home Saver Accounts will help around half a million first home buyers save a bigger deposit by establishing superannuation-style low tax savings accounts.Federal Labor’s First Home Saver Accounts will help boost national savings, with the accounts anticipated to hold around $3.5 billion in savings after three years.
Federal Labor’s First Home Saver Accounts will allow a couple – each on an average wage and saving 10 per cent of their income – to save a deposit of around $64,000 over five years.
This $64,000 deposit is around $14,500 - or 30 percent - more than could be achieved by saving through an ordinary deposit account.
This benefit amounts to $2,900 extra a year in savings towards a home deposit.
One of the greatest obstacles to buying a first home is saving a deposit.
A larger deposit will also reduce the debt burden for young homebuyers and can help them avoid incurring costly mortgage insurance.
The new First Home Saver Accounts will build on the arrangements for superannuation - allowing potential first home buyers to access similar tax breaks on their first home savings and unlock higher returns.
Savings with Labor’s First Home Saver Account will receive preferential tax treatment in two key ways compared to ordinary savings accounts:
- Savers will be eligible for a low tax rate of 15 per cent on the first $5000 of income they deposit in their account each year - rather than the ordinary tax rate they would pay.
- Interest earned will be taxed at 15 per cent or less.
Under an ordinary savings account both contributions and interest earned on savings are taxed at the individual’s relevant income tax rate.
As a result, the tax benefit provided by the First Home Saver Account will enable most first home buyers to save substantially more than they otherwise would.
In addition to the first $5,000 in tax-preferred contributions an additional $5,000 a year may be contributed towards a First Home Saver Account from after tax income without paying any further tax on that contribution.
This will allow parents to help their children to save their deposit.
Even though it typically takes first homebuyers an average of five years to save an adequate home deposit, Labor’s plan will allow savings to be withdrawn after four years to provide a reasonable degree of flexibility in an ever changing property market.
The minimum savings period of four years will also enable superannuation funds to achieve higher rates of return on First Home Saver Account deposits.
Withdrawals from the accounts will only be permitted for the purchase of an eligible first home and will be tax-free.
The newly-created accounts will be separate to individuals existing superannuation and individuals will not be able to access their existing retirement savings.
A Rudd Labor Government will forgo $600 million in tax revenue – in the first three years – to give first home buyers access to the newly-created accounts.
Source : http://www.alp.org.au/media/1107/mshou040.php
One Response to “Low Tax First Home Saver Accounts”
By GB on Feb 23, 2008 | Reply
The restriction on when the deposit can be withdrawn is a point worth discussing. It porbably makes more sense to have a transition phase where someone putting in a large deposit should have pro rata reduciton in the 5 year timeframe.
for example if someone establishes the account with 40k, then the withdrawal should be time restriction should only be two years. This is of course should be tested on whether the person is on high income. That is first home buyer on low to average income who have been saving diligently should be able to take advantage of this scehme.
I do think that there needs to be some measure put in place to limit the welathy from rorting this scheme.