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Re: Tax return for after-tax vs pre-tax contributions

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Hello,

 

Apologies if this has been asked previously.

 

I have recently put 15k of post-tax income into super and given my notice of intent to claim the full amount for FY21. I intend to put a further 15k of fully concessional contributions into super in FY22, and also intend to purchase a property that meets the FHSS criteria in FY22.

 

I am trying to understand how much money (focusing only on the 30k in the scheme) I will actually have to put towards the property if I put this second 15k in through salary sacrifice vs as post-tax income if I am to make the release request as soon as possible in the same financial year. I am focusing on tax benefits only, ignoring the benefits from having been in super.

 

Background info: my marginal tax rate is 32.5% and $15k in concessional contributions does not bring me over the $25k cap. I have HELP debt (let's call it 5% repayment rate). I am liable for the Medicare Levy but not Surcharge.

 

My understanding is that for the 15k I have already put in super in FY21: $12750 is eligible for release and the super fund will hold the other $2250 in tax.

1. When I complete my FY21 tax return, I will be taxed on [my actual FY21 income] - $15000. In this case the benefit should be $4875 (=marginal tax rate * 15k) minus Medicare Levy minus HELP repayment, is that correct?

 

If we say I've now done my FY21 tax return, I hypothetically have $12750 in super that is eligible for release under the FHSS, and the amount (that I understand to be $4875 minus Medicare Levy minus HELP repayment) from question 1 above in my bank account. From this point there are 2 scenarios that I would like to compare:

 

Scenario #1:

In July 2021, I put another $15k of post-tax income into super, notify of my intent to claim the full amount, receive acknowledgement of intent to claim, then request release of super. 

 

Scenario #2: 

I salary sacrifice $5k per month (I am paid monthly) of pre-tax income in Jul, Aug, and Sep 2021, and then request the release of super.

 

Please correct if any of the below is incorrect:

  • I should have $25500 eligible for release under the scheme in either scenario 
  • I will pay 4.5% tax on that $25500
    • If I request the release of super at the start of FY22, do I receive the full $25500 and pay this 4.5% in my FY22 tax return? Or is it taxed on the way out of the super account meaning I actually receive $24352.50 on release of the funds?
  • In both scenarios, if we include the tax return from FY21, approximately how much would I have available to spend when I release the funds in early FY22? I understand that in scenario #1 I would realise the tax benefit in my FY22 tax return and not at time of release.

It would be great if you could use actual numbers (even if approximations) and explain how you got them.

 

Thanks so much in advance!

 

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Most helpful response

Community Moderator

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Hi @TaxCurious2
 
We can confirm that with both scenarios, your first home super saver (FHSS) maximum release amount would be $25,500 plus associated earnings. This is because it includes 85% of your voluntary concessional contributions.
 
With a marginal tax rate of 32.5%, your 4.5% tax calculation is also correct. This is because the rate is worked out by looking at your marginal tax rate, adding the Medicare levy (2%) and subtracting the 30% tax offset.
 
When we receive your released amount from your super fund, we will withhold tax from the assessable amount. Ignoring the associated earnings and the 50 cents (we don't withhold cents), your $24352.50 calculation is correct.
 
Claiming a personal contribution deduction or salary sacrificing super won't reduce your compulsory HELP repayment, but it will reduce your income tax and Medicare Levy liabilities. This means your combined tax and Medicare levy savings across the two financial years would be $10,350 ($30,000 x 34.5%).
 
When you add these amounts together, you'll have around $34,700 to spend. When you add on the associated earnings (minus 4.5% tax), you'll have a bit more to spend. The longer your voluntary contributions remain in your super fund, the more your associated earnings will be.
 
Go to our website for more information about the first home super saver scheme. Our FHSS scheme guidance note GN 2018/1 contains some helpful examples.

2 REPLIES 2

Community Moderator

Replies 0

Hi @TaxCurious2 

 

Great question, we will do some research and let you know.

Most helpful response

Community Moderator

Replies 0

Hi @TaxCurious2
 
We can confirm that with both scenarios, your first home super saver (FHSS) maximum release amount would be $25,500 plus associated earnings. This is because it includes 85% of your voluntary concessional contributions.
 
With a marginal tax rate of 32.5%, your 4.5% tax calculation is also correct. This is because the rate is worked out by looking at your marginal tax rate, adding the Medicare levy (2%) and subtracting the 30% tax offset.
 
When we receive your released amount from your super fund, we will withhold tax from the assessable amount. Ignoring the associated earnings and the 50 cents (we don't withhold cents), your $24352.50 calculation is correct.
 
Claiming a personal contribution deduction or salary sacrificing super won't reduce your compulsory HELP repayment, but it will reduce your income tax and Medicare Levy liabilities. This means your combined tax and Medicare levy savings across the two financial years would be $10,350 ($30,000 x 34.5%).
 
When you add these amounts together, you'll have around $34,700 to spend. When you add on the associated earnings (minus 4.5% tax), you'll have a bit more to spend. The longer your voluntary contributions remain in your super fund, the more your associated earnings will be.
 
Go to our website for more information about the first home super saver scheme. Our FHSS scheme guidance note GN 2018/1 contains some helpful examples.