To most I would seem like the perfect person First Home Saver Accounts are aimed at. Kevin Rudd and the Labour Government seem to think else wise. I am 24, been in a steady relationship for three years, looking to purchase a place in the next couple of years. I have been saving for a year now for a place. I save above the $5,000 a year, so I would get the full $850 bonus off the Government plus the 8% interest off AMP if I put my money there.
What is the First Home Saver Accounts?
The Australian Government has released their First Home Savers accounts on 1 October 2008. These accounts are meant to help people planning to buy their first home save for it. This is done by the person agreeing that the money in these special accounts will only be used to buy their first home or the money goes to their super. For each fiscal year the person saves at least $1,000 the Government will kick in 17 cents per a $1, for the first $5,000.
What is the catch?
There is a massive risk of losing all that money till your 60 (per current laws). to buy a house using this money you have to deposit a minimum of $1,000 into the account in four separate fiscal years. If you purchase a house before this then all the money gets locked away into super.
Why is this so bad?
Basically it means that people who are committed to buy a home in the next four years are not able to take advantage off this offer. It locks people into renting for a minimum of four years. If you lose the money to your super account you would of saved more then you get if you had of directly salary sacrifice the money into super.
Why cant people who seriously want to buy a house take advantage of this offer?
Anyone who is serious about saving for a house and buying it in the next couple of years do not want to have to wait the four years to access their money. So this means the offer is more suited to people who are thinking maybe one day. Other wise it is really good for the rich who decided that they are going to give their kids $5,000 a year.
How are people forced to rent for a minimum of four years?
The Government puts your money in hostage. If you want to use that money to buy a house before depositing a minimum of $1,000 per a fiscal year over four separate fiscal years, the Government will lock your hard savings into savings. People who are already renting and wanting to get out do not say ‘I want to stop renting in a minimum of 4 years’. It is more like a two to three commitment to get out. So if a couple save really hard for a place over three years and decide they have found the right place the Government is going to take that money from them and keep it from them for 40 YEARS or more!
What do you mean it is more viable to salary sacrifice?
Most people leaving uni are paying 30 cents in the dollar tax. The money that goes into the account has already been taxed. By salary sacrificing you save 30 cent in the dollar compared to 17 cents in the dollar you get off the Government. The catch of salary sacrificing is that is locked in till your 60.
Using a simple example you have $1,000, normally this would be taxed at $300, so you really get $700.
Super Salary Sacrifice
For the $1,000 all $1,000 goes into the account, and your taxable income drops by $1,000 reducing you taxable income by $300, effectively giving you $300. But your HECS repayment is is reduced for the year. So for the $1,000 you lock away, which you do not see, you effectively get $360 in your pocket and the full $1000 in your account. The money is not accessible till your 60 except for special exceptions.
First Home Saver
That same $1,000, first becomes $700 post tax you are putting into the account. The government gives $119.00 for that $700, making it $819. Into your account. This money is locked away for minimum of four year and must be used to buy your first home or it goes into super.
Regular Savings
That same $1,000, first becomes $700 post tax you are putting into the account. This money is accessible whenever, depending on account type.
All of the above examples earn interest. Using the above $1000 pre-tax $’s you get:
| Super |
$1,360 |
| FHS |
$819 |
| Savings |
$700 |
So First Home Saver is a lot bigger earner then your normal savings account, as savings into a normal savings account are post tax. If for some reason, and there is a lot of ways, your money from the First Home Savers account get locked into super you are a lot worst off.
Who is it good for?
People who are willing to save $1,000 to $5,000 a year for a minimum of 4 years. They will need to have adequate alternative savings for an emergency purchases as they cannot use the money in this account. They need to ignore any houses on the market for that time. If I was to open one of these accounts I would put no more then $5,000 a year in there as you only get the benefit on the first $5,000. Each dollar after the first $5,000 would be just locking it away for no point.
So for my own personal situation the above applies. Of course you should assess your own situation when considering the First Home Savers account and consult a financial adviser as you may be in a different situation.
