Treasurer Frydenberg handed down the federal budget last night and to be honest, there’s not a lot in it for individuals and investors. However, there are some real positives for small business, first home buyers and retirees. This blog provides a summary of the initiatives announced on 11 May 2021.
First home buyers’ to be able to access more super for a deposit
The
First Home Super Saver (FHSS) scheme was introduced four years ago to help first home buyers save a deposit. In summary savers can make tax-deductible voluntary contributions into super of up to $15,000 per year. These contributions are usually taxed at a flat rate of 15%, which means it reduces their income tax liabilities. They can then access these savings (plus investment earnings) in the future and contribute the monies towards the purchase of a first home. Previously, the maximum a saver could access from super was capped at $30,000. However, this has been increased to $50,000 in this year’s budget.
Savers cannot withdraw compulsory employer contributions i.e. the 9.5% (
to increase to 10% after 1 July 2021) their employer contributes on their behalf. These contributions are still preserved inside super, which is good.
The benefit of this is it makes it easier to save after-tax dollars. For example, someone earning $135,000 p.a. pre-tax would pay a marginal tax rate of 39% on the last $14,000 of pre-tax income – or $5,460 – allowing them to save only $8,540 after-tax ($14,000 - $5,460). However, if they salary sacrificed that $14,000 into super, their super fund would only pay $2,100 of tax, allowing them to save $11,900 after-tax. In this example, this person has increased their savings by almost 40% due to the tax savings.
People earning greater than $120,000 p.a. could enjoy the highest tax savings.
Expend the home loan guarantee scheme
The
First Home Loan Deposit Scheme (FHLDS) allows borrowers to borrow more than 80% of a property’s value whilst avoiding the cost of mortgage insurance, because the government guarantees part of the loan. Places under this scheme are very limited. However, the government will make available another 10,000 places. Plus a further 10,
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