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First Home Super Saver scheme - it seems like I'll be paying MORE tax if I do it?

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Hi guys

 

I've just been reviewing this link https://www.ato.gov.au/Individuals/Super/Withdrawing-and-using-your-super/First-Home-Super-Saver-Sch...

 

I was thinking I'd go for the concessional contributions (before tax), with the objective of paying less tax overall.

 

If I'm taxed 15% straight away on any voluntary contribution to my super, then when I have the money released for my home deposit I'm taxed my income tax rate (currently approx 36.65%), minus 30% of that 36.65% (ends up being 26.655%)

 

So all up I'm paying that 15% as it enters my super, then 26.655% of the remaining amount when it exits my super? By my calculations that ends up being approx 37% of the original amount, meaning I would have been better off keeping in my bank account. Plus if my income grows between when I start making voluntary contributions, and when I get the money released, I'll be even worse off I use this scheme 

 

Am I misunderstanding the link, or doing my calculations wrong or something? 

 

Thank you for your help

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ATO Certified

TaxTime Support

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Hi @Nomu

 

Welcome to our Community.

 

You are correct in your understanding of how concessional contributions are taxed. They are indeed taxed at a concessional rate of 15% by the super fund. Where your misunderstanding appears to be is how the tax and offset are applied to the assessable first home super saver (FHSS) released amount.

 

If you are an Australian resident for tax purposes, your taxable income is taxed in line with the resident tax rates. You can view these tax rates by referring to the individual income tax rates page on our website.

 

The assessable FHSS released amount is included in your taxable income and taxed at the applicable tax rate; however you are entitled to a 30% tax offset on that amount. For example, if your tax rate was 37%, after adding the Medicare levy (2%) and subtracting the 30% tax offset, the effective tax rate would be 9%.

 

This means that if you were to make a $15,000 voluntary concessional contribution, the contributions tax would be $2,250 (15%). Using the above example, the tax on the $15,000 assessable FHSS released amount would be $1,350 (9%). The total tax paid on that $15,000 would be $3,600 (24%).

 

The FHSS scheme allows you to save money for your first home inside your superannuation fund. You are able to take advantage of a lesser rate of tax on your concessional contributions as well as a higher rate of earnings.

 

Working out how much tax you will pay on the voluntary concessional contribution isn't necessarily the best way to look at it. A better way is to compare how much you will end up with if you had saved the money in a more traditional way (savings account) versus using FHSS scheme.

 

There is a thread in our forum that tries to demonstrate the savings. You can check it out here: FHSS tax calculation

 

Hope this helps.

 

Thanks,

 

ChrisR

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Best answer

ATO Certified

TaxTime Support

Replies 1

Hi @Nomu

 

Welcome to our Community.

 

You are correct in your understanding of how concessional contributions are taxed. They are indeed taxed at a concessional rate of 15% by the super fund. Where your misunderstanding appears to be is how the tax and offset are applied to the assessable first home super saver (FHSS) released amount.

 

If you are an Australian resident for tax purposes, your taxable income is taxed in line with the resident tax rates. You can view these tax rates by referring to the individual income tax rates page on our website.

 

The assessable FHSS released amount is included in your taxable income and taxed at the applicable tax rate; however you are entitled to a 30% tax offset on that amount. For example, if your tax rate was 37%, after adding the Medicare levy (2%) and subtracting the 30% tax offset, the effective tax rate would be 9%.

 

This means that if you were to make a $15,000 voluntary concessional contribution, the contributions tax would be $2,250 (15%). Using the above example, the tax on the $15,000 assessable FHSS released amount would be $1,350 (9%). The total tax paid on that $15,000 would be $3,600 (24%).

 

The FHSS scheme allows you to save money for your first home inside your superannuation fund. You are able to take advantage of a lesser rate of tax on your concessional contributions as well as a higher rate of earnings.

 

Working out how much tax you will pay on the voluntary concessional contribution isn't necessarily the best way to look at it. A better way is to compare how much you will end up with if you had saved the money in a more traditional way (savings account) versus using FHSS scheme.

 

There is a thread in our forum that tries to demonstrate the savings. You can check it out here: FHSS tax calculation

 

Hope this helps.

 

Thanks,

 

ChrisR

Newbie

Replies 0

OK perfect, that makes a lot more sense then.

 

Thank you Chris, that was very helpful!!

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