Here’s the insanely complex way the government wants to help young people save for their first house

The Wolf of Wall Street / Paramount Pictures via IMDb

The Turnbull government will launch a tax break for people saving for their first home, in the form of voluntary contributions to superannuation.

The First Home Super Savers Scheme will come into effect from 1 July this year.

Savers will be able to make additional contributions to their super account which is taxed at the concessional rate of 15%, rather than the standard marginal rate on their salary, in a manner similar to salary sacrifice.

Contributions will be capped at $15,000 per year up to a total of $30,000.

The extra contributions will only be eligible to earn interest on a deemed rate based on 90-day bank bills, plus 3%. It won’t be allocated to standard superannuation investments such as blue chip stocks. Any interest earned will be taxed at 15%.

Withdrawals on the savings are allowed from 1 July, 2018 and taxed at the marginal rate the person incurs on their salary.

But the tax applied at the marginal rate will then be reduced by 30%.

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In a worked example, the government cited a person earning $60,000 who salary sacrifices $10,000 per year of pre-tax income into their super account over three years.

After the 15% tax, they would have $8,500 per year invested, accumulating to $25,500 after three years, with after-tax interest earned of $1,880 — $27,380 in total.

The government said that tax on the $27,380 at the person’s marginal tax rate, less the 30% offset, would leave net tax to pay of $1,880. That leaves $25,760 for a deposit.

The government claims that is $6,240 higher than saving via a standard deposit account.

Anyone self-employed or whose employer doesn’t offer salary sacrifice can claim a tax deduction on contributions to their superannuation account, which effectively makes it a pre-tax contribution.

Chris Brycki, CEO of investment adviser Stockspot, was highly critical of the idea.

Describing the measures as “rent shaming”, Brycki said that the scheme was encouraging younger Australians to make highly leveraged investments at a risky time in the property cycle.

“The average Sydney property price would only need to fall by 3% to wipe out the entire $30,000 saved from the First Home Super Savers Scheme,” Brycki said.

“Real innovation for the lack of affordable housing would be modelled on what we see in other parts of the word where renting is as socially acceptable as owning and young people are encouraged to invest their savings in productive assets, like shares, rather than a mortgage.”

The budget will also attempt to alleviate supply-side pressures in the market by making it easier for older home-owners to downsize and sell the family home.

From 1 July, 2018, people aged 65 and over will be able to make a one off, after-tax contribution of up to $300,000 to their superannuation fund from the proceeds of selling their home.

People will be required to have lived in their home for at least 10 years to be eligible. Both members of a couple can make the $300,000 contribution up to the value of $600,000, and there will be no restrictions if one or both of the couple are still working or if they already have a high superannuation balance.

However, the government will count any funds poured into superannuation from a home sale towards the aged pension asset test.

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