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Disclaimer

This is not advice. Items herein are general comments only and do not constitute or convey advice per se. The information contained in these articles is for guidance only and should not be relied upon without obtaining professional advice having regard to your direct circumstances.

 

First Home Saver Account

The strategy: To invest in a First Home Saver Account

Can I do that? It’s taken a while but these accounts will be up and running from October 1 2008. That means you need to talk to your super fund or financial institution about whether they’ll be offering an account and if they’re not, find someone who will, so that you’re ready to go when they become available.

To recap, First Home Saver Accounts were promised by Labor during the election campaign to help address low-housing affordability. They’ve undergone a few changes in the interim but the final account will offer first-home buyers the chance to save their deposit in a concessionally taxed account, with the Government kicking in as well.

How will they work? They will look much like super funds, in that your money will be held in trust, you’ll be offered a range of investment options, and the earnings in your account will be taxed at 15 per cent. However, they will not just be offered by super funds – banks and other financial institutions will be able to offer them too.

You (and anyone else who wants to) can make after-tax contributions to the account and the Government will match 17 per cent of the contribution up to $5000. So this year, if you contribute $5000, the Government will kick in $850. The Government contribution will be indexed over time. There is no regulated minimum account balance – though some providers may set one for their product.

The accounts are a medium- to long-term investment. You can only withdraw your money if you have contributed at least $1000 a year for four financial years (they don’t have to be consecutive) and you can only withdraw it to buy your first home, to roll it over into super, or when you turn 60. If you withdraw to buy your own home, you have six months from the withdrawal date to use the money in buying your home or to reopen a First Home Saver Account. If you spend it on other purposes, you’ll be up for penalties.

Can I use the money to build a home? The money must be put towards buying or building your home – so it can be used for anything from buying a vacant block of land to paying incidental costs, such as legals and stamp duty. The only requirement is that the home you spend the money on must be your main residence for at least six months, starting from within 12 months of you becoming the owner of the home, or, if you’re building, within 12 months of construction being completed.

Will the account be means tested? No, though an overall cap of $75000 will apply. Once you reach this cap you can’t make any further contributions, though investment earning and any outstanding Government contributions can still be added to the account. That cap will also be indexed in $5000 increments.

Can anyone open one? To be eligible, you must be between 18 and 65, and have not previously owned a home that has been your main residence. That second point is important, as it means you could open an account if you had previously owned an investment property or if your partner owns a home. (In this instance, you’ll be eligible for an account but your partner won’t, as you are assessed individually).

You don’t have to be an Australian resident, though you do need to be a resident for tax purposes for at least part of the year to get the Government’s contributions.

Can I transfer my existing savings to the account? You can contribute any money you like but Sam Wall, Colonial First State’s head of technical services, says if you have a lump sum it may be better to drip feed it into the account over a couple of years to get the Government’s $850 each year.

He says someone with $20,000 on the 31.5 per cent marginal tax rate would have $28,896 after five years if they immediately invested the money in a First Home Saver Account earning 8 per cent. If they put the money in a term deposit earning the same amount, they’d have $26114. But if they contributed $5000 a year for four years, they’d end up with $31320 – largely thanks to the extra Government contributions.

Wall says some people might also consider the accounts as an add-on to super, particularly if they are nearing retirement and have already contributed the maximum allowed. For more information see www.ato.gov.au.

By Annette Sampson
September 3, 2008
Money
The Sydney Morning Herald

 


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