11 Jul 2019

How First Home Buyers Can Use Salary Sacrificing to Buy a House

Mortgage Insurance

There’s a multitude of schemes and strategies you could be doing to save and get ahead on your finances, but given the vast array of options, many end up feeling overwhelmed. Reverting to putting aside a little money each week in a savings account is a tried and true method, but it’s slow going. Salary sacrificing presents a simple method to help you save, reduce tax and buy your first home sooner. 

What is salary sacrificing?

Salary sacrificing is actually a very simple way to reduce your tax. An employee can arrange with their employer to pay for goods and services using their pre-tax salary. Paying for items or services which you otherwise would have using your after-tax pay is an easy and convenient way to reduce your salary, which means you pay less tax. 

How does it work?

An employee must make salary sacrificing arrangements with their employer in advance. Not all employers will allow employees to salary sacrifice. Some businesses, especially small ones, will not offer salary sacrificing. It’s important to check with your current or prospective employer if this is something you want to take advantage of. 

The goods and services that you can salary sacrifice will also depend upon your employer and rules set out by the Australian Tax Office. Salary sacrificing arrangements are often used for superannuation contributions, to purchase electronic devices such as laptops and phones, for car purchases, and to pay for services like child care or school fees.

How can salary sacrificing help you to buy a house?

Aside from savings that can be gleaned from a reduced tax bill, salary sacrificing for the purpose of voluntary superannuation contributions can help first home owners get into the property market sooner.

In 2017, the Australian government introduced the First Home Super Saver Scheme (FHSS) to help first home buyers save and get into the property market. The scheme allows first home buyers to make pre-tax super contributions and withdraw up to $30,000 of those funds in order to purchase their first home. 

The scheme can help first home buyers save for a deposit sooner by reducing tax. An Australian earning an average income is taxed 32.5% while super contributions are taxed at just 15%. Therefore, first home buyers may be better off making voluntary superannuation contributions and treating it like an ‘untouchable’ savings account instead of saving in a bank account.  

Who is eligible?

The FHSS scheme is open to first home buyers only. To qualify, you must have never owned property in Australia. 

How does it work?

Start by arranging a salary sacrificing agreement with your employer. Alternatively, you can also make super contributions from your after-tax income, then claim deductions and withdraw at a later date under the FHSS scheme. 

Check that your nominated super fund will release your contributions along with any fees or implications that may arise. You can check on the growth of your savings with your super fund at any time.

When you wish to withdraw under the FHSS scheme, you will need to apply for a FHSS determination from the Commissioner of Taxation. When determining your release amount the Commissioner of taxation will consider your pre-tax and post-tax contributions in addition to the associated earnings calculated on these contributions. You can apply for a determination more than once, online through your myGov account. 

The scheme includes strict rules and the following are important to note:

  • You can only release funds under the FHSS scheme once, even if you have not released the maximum amount of $30,000.
  • The released funds must be used for the purchase or construction of your property.
  • A contract to purchase or construct a home must be entered into within 12 months of the release date.
  • It will take approximately 25 business days for the funds to be released to you.
  • You must intend to occupy the property as soon as possible for at least 6 of the first 12 months.

For more information on the First Home Super Saver Scheme and how salary sacrificing can help you buy a house visit the ATO website

Mortgage House

At Mortgage House, we’re no strangers in the journey to homeownership. It’s a long (but rewarding) one.

Before purchasing your first home, make sure you do your research. Begin by browsing our other blogs!  

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