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The Experts

Bernadette Morabito
Expert
+ About Bernadette Morabito
Bernadette Morabito is online editor of Switzer Daily. She writes regular columns for the Switzer Super Report and Switzer Daily. Bernadette holds a Bachelor of Media and Communications from Sydney University and has worked at Switzer Group since 2014.

First Home Super Saver Scheme “a no brainer”

Wednesday, May 17, 2017

By Bernadette Morabito

You’ve probably heard about the Budget’s surprise bank levy, which will see Australia’s Big Five fork up an extra $6.2 billion over four years. And you’ve probably heard something about the Medicare Levy increase – a 0.5% tax hike for the majority of taxpayers. But what about the ‘winners’ from the Budget, like first home buyers?

It might not be an amount to write home about (after all, someone in Western Sydney did win Powerball's $50 million prize the other day) but the Government is allowing individuals to contribute up to $30,000 to super to help them build a first home deposit.

It’s called the First Home Super Saver Scheme.

How to do it

So how can you get that extra money into your super fund? By salary sacrificing into super – or making what’s known as a concessional or before-tax contribution. You’ll need to arrange this with your boss. Concessional contributions are taxed at 15% when they enter your super fund. Earnings inside the fund are taxed at 15% every year. 

For the majority of people, the benefit of the First Home Super Saver Scheme lies in the lower rate of tax you’ll pay on the savings within your super fund (15%), compared to the tax you’ll pay outside of super (your marginal tax rate).

The rules

When the measure comes in on 1 July 2017 (provided the Senate passes it), the First Home Super Saver Scheme will be subject to a few rules:

  • You can only contribute $15,000 a year and a maximum amount of $30,000.
  • Contributions will count within the regular concessional cap of $25,000 per annum. This includes your compulsory employer contributions of 9.5%.
  • The money accumulated under the scheme can’t be withdrawn for any other purpose than to purchase your first home. Otherwise, it’s locked up until you retire.
  • The contributions, along with any deemed earnings, can be withdrawn for a deposit from 1 July 2018. 

When you’re ready to access your money

So what happens when you’re ready to buy your first home and access the money (plus any deemed earnings) for a deposit?

When you withdraw the money, you’ll be taxed at your marginal income tax rate, minus 30 percentage points.

For example, let’s say your marginal tax rate is 39% (37% plus the 2% Medicare Levy). With the 30% tax offset, you’ll pay a withdrawal tax of 9%.

What the experts say

So how much leverage does this policy give home owners? And is it a good idea?

Here’s what the experts think.

Property expert John McGrath views this measure as beneficial to all buyers, but notes that Sydney and Melbourne buyers will benefit less from the scheme, due to higher property prices. However, he says we can’t hand first home buyers “a blank cheque” either.

“…this measure appears to be a sensible way for the Federal Government to contribute to affordability. For today’s younger buyers, saving the deposit is a far bigger hurdle than managing repayments, given mortgage rates are so low,” he explains. 

McGrath also reminds us to not forget that this new federal assistance to first home buyers will be in combination with state government measures.

“The Victorian Government plans to abolish stamp duty on properties worth $600,000 or less, and double the First Home Owner Grant for regional buyers,” he explains.

“We’re yet to find out what the New South Wales Government intends to do - but a taskforce has been set up.”

Margaret Lomas of Destiny Financial Solutions was more frank in her assessment of the scheme.

“Unless the Government can market this scheme well, I can’t see how this one will have any greater chance of success than the last time such a scheme was introduced,” she said.

“The First Home Saver Scheme [FHSA], which was abandoned a few years ago, not only allowed a similar low tax environment, but it also included a government co-contribution.”

“This [First Home Super Saver Scheme] offers less, and is also likely to fail.”

Lomas believes any scheme that allows a young person to save is a good idea – but she’d like to see more.

“Schemes need to include not only savings incentives, but reduced interest rates for first home buyers, government contributions and grants and housing prices - especially for first time buyers who can satisfy specific criteria.”

Switzer Super Report expert, Paul Rickard, says the scheme is a “no brainer” for young people.

He says the benefits are made clear with some simple number crunching that shows much larger savings made inside super compared to outside super.

For example, the First Home Super Saver Scheme estimator shows that if you earn $70,000, and make an annual salary sacrifice of $10,000 each year for three years, you would have an estimated $25,892 for a house deposit.

Source: Budget 2017-18 Estimator; http://budget.gov.au/estimator/

That’s $6,210 more than if you were to save in a standard deposit account ($19,681).

Rickard’s view is in contrast to the ‘father of Superannuation’ Paul Keating. In an opinion piece for the AFR, Keating said that allowing access to super for property is an irresponsible idea by reducing the amount that Aussies have in retirement.

“I don’t think there’s anything sacrosanct about superannuation”, Rickard said on Switzer TV.

“I think super is for retirement, and having a home is as an important retirement asset as having money that is either used to pay rent or to live on.”

 “I don’t understand why superannuation and housing can’t be linked. They seem to be both key retirement assets.”

Rickard also think the scheme serves to make super more relevant to younger people, who generally don’t see the appeal in locking up savings inside a vehicle for many years.

“This [First Home Super Saver Scheme] gives people a reason to think about additional contributions into super and to take advantage of the system”.

However, he says there are plenty of details still to be worked out about the scheme, such as potential age limits, and if you’ll be able to access the scheme if you have an existing investment property.

The government is currently drafting legislation for the measure. Watch this space. 

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Save money this Christmas: 3 ways to access Black Friday sales

Wednesday, November 23, 2016

By Bernadette Morabito

It’s a short trading week for the US as Thursday’s Thanksgiving holiday kicks off the festive season.

And while most Australians won’t be sitting down to a turkey and pumpkin on November 24, we’ll be taking the lead from our US ally by snapping up a bargain the next day, known as Black Friday.

Black Friday is one of the biggest shopping days of the year in America as retailers capitalise on the huge crowds they can generate by slashing prices. 

According to Adobe Digital Insights data, it’s predicted that Black Friday sales in the US will hit a new record in 2016 at $3billion. That’s an 11.5% increase on last year. Cyber Monday on November 28 (think of it as the online version of Black Friday) is forecast to deliver $3.36 billion or 9.4% year-on-year growth.  

Like Halloween, there’s still a bit of headway before Black Friday and Cyber Monday warrant a big red X on Australian calendars. However, the shopping bonanza seems to be gaining traction, with the blurred lines of the online world helping Australians to get their hands on some of these deals, many of which actually start ahead of these dates, so keep your eyes peeled.

Choice.com.au says 87% of Australian consumers will shop online as we approach Christmas and 17% will capitalise on Black Friday and Cyber Monday sales. 

But a word of caution from CHOICE: a little bit of research can go a long way to make sure you’re getting the best deal. Sometimes the hype can cloud our self-control and before you know it, you’re paying a premium to the recommended retail price. So shop around first. With that proviso, here are some ways to access the shop mania from the comfort of your armchair.  

1. Cuponation

Cuponation is a platform that lists savings from around the world in a way that’s digestible and easy. Catchoftheday.com.au, Jetstar, Dan Murphy’s and The Iconic are just some of the online retailers listed with Black Friday sales. All you do is copy the code that pops up when you click on a deal, and use it when you make the transaction at the chosen site.

2. Finder.com.au

As a site that focuses on price comparisons and generating the best deal for consumers, Finder.com.au also has a big slate of Black Friday deals. Like Cuponation, some of the listed sales have a code to copy, while others take you directly to the deal on the site. ASOS, The Book Depository, Woolworths and Contiki are all featured on the list.

3. Shopbot

Shopbot says it brings more than 50 million online shoppers to more than 15 million online products globally. They are running a ‘Black Friday Deals Week’ and feature a large amount of consumer technology products for those of you who want to buy a new smartphone or laptop. You can easily sort results by popularity, price and discount to tailor your search.

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3 ways to break into the property market sooner

Tuesday, November 15, 2016

By Bernadette Morabito

It’s no secret that young people are finding it harder than ever to crack into the housing market, particularly in capital city hot spots where prices remain on the boiler.

According to research house CoreLogic, Sydney dwelling values increased 10.6% over the past 12 months, while Melbourne’s annual rate of capital gains stands at 9.1%. And with the median dwelling prices of Sydney and Melbourne at $800,000 and $600,000 respectively, coming up with the necessary deposit (that’s often around 20% of the purchase price) is no easy feat.

In fact, one-third of Australians spend more than five years saving for a deposit, while more than 11% of Australians have saved for 10 years or more to come up with the dough, according to a survey by finder.com.au. On average, it takes 3.7 years to save for a deposit.

So are there ways for aspiring first-home owners to fast track their way into the property market? After all, there’s only so much one can save by skimping on avocado on toast for breakfast. 

Margaret Lomas of Destiny Financial Solutions shared three tips to help young people jump on the property ladder sooner rather than later. The first two options might suit those who don’t want to settle for a cheaper or less desirable property and location, and are lucky enough to have family members who can lend a helping hand to beat the deposit hurdle.

1. Check out ‘shared equity’ options some banks provide

“This is where the parents allow a small portion of their own home to be secured against the loan, but the loan is in the child’s name,” says Lomas.

Essentially, parents (or immediate family members) share some of their own home’s equity to provide extra security for the child’s loan amount.

“So what happens is that the loan comes out in the child’s name, and they (the bank) secure the property that your child’s bought, and a little bit of yours to create the deposit.”

In this scenario, the child’s loan-to-value ratio (LVR) will be reduced which can also reduce (and even avoid) the need for Lender’s Mortgage Insurance.

Parents won’t have ownership in the property, but are essentially a guarantor on the loan until the child’s property appreciates enough to support the loan on its own.

“Once the home that the child has bought reaches the point where it has grown enough, the bank releases the parents’ home, and the loan remains secured only by the home it purchased.”

2. Consider a joint venture

Parents and children can enter into a property purchase together. Both parties will take a ‘tenants in common’ arrangement, which allows both parties to take unequal stakes.

“The parents may supply say 20% of the value of the purchase price using their own home equity or cash, and in return, they get 20% of the property, and 20% of the gain when it gets sold in the future,” Lomas says.

“Once that property grows, the child can either buy you out by getting more of a loan, or you can sell it together, and each take your proceeds”.

There’s obviously shared responsibility in this type of arrangement, so it’s important to think carefully about the potential challenges you could face if both parties have a different outlook or goals for the property.

3.  Become a landlord first

Yes, you might have to let go of the idea of purchasing your dream home with the white picket fence, but purchasing an investment property first has significant benefits.

For example, you might search for a more affordable property in a potential future hotspot where yields are attractive. Obviously, if the property is more affordable, the deposit required will be less. And while the tenant pays for the mortgage with their rental payments and the property appreciates, you can continue to save for your second deposit.

“The [home-owners] savings are then boosted by the property growth, which can either be realised in a sale, or leveraged against to act as a further deposit on your own home,” says Lomas.

“Useful to note that the first home owner grant is NOT lost by the home owner as long as they do not live in that investment.”

Exploring the fundamentals of an affordable area is important with this strategy: young buyers should ensure there are enough growth drivers to increase the value of the property over time. Click here to learn about how to spot promising signs.

So what are some areas with potential for future growth?

Melbourne’s South East, such as Carrum Downs and Cranbourne, suggests Lomas. Logan Shire in Brisbane, along with Moreton Bay Shire, could also experience the ‘ripple effect’ from neighbouring suburbs.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

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Tax time tips

Wednesday, June 15, 2016

By Bernadette Morabito

Before you yawn about the barrage of tax time articles you’ll likely see rolling in as June 30 approaches, some of them can offer helpful tips. The Australian Taxation Office (ATO) has revealed key changes in its approach to helping you lodge your tax online, and has provided some useful tips for those who are a little unsure about claiming expenses. 

First-up, if you’re still annoyed by the glitch-prone e-Tax system, the ATO has announced that they’ve ditched and replaced it with the new and improved myTax, first introduced in 2014. This is what myTax can offer;

  • Quick and easy lodgement for those who are time poor and want to employ your mobile device for the job (let’s face it, even your boarding pass can be scanned on your smart phone now). Smartphones, tablets, and computers should be compatible with myTax. 
  • From July 1, Australians with rental properties will be able to use myTax with access to integrated tools and calculators. ATO Assistant Commissioner, Graham Whyte, says some of these tools allow property investors to record depreciation and capital gains.

This approach to lodging tax was so popular that in 2015, there was a 70% increase in people lodging through the myTax tool. 

“Over the past few years we’ve been seeing around three million Australians prepare their own tax return using either myTax or e-tax, so we’re hoping to see three million myTax lodgements in 2016,” Mr Whyte said.

Despite the myTax tool providing easy online lodgement, around 74% of Aussies still go through a tax agent to lodge their own tax return. Incorrectly claiming expenses could be one reason holding individuals back. If this sounds like you and you really want to take the reins on your return this year, the ATO suggests:

  • Knowing your entitlements. Whyte says there are three golden rules when claiming a deduction: making sure you spent the money yourself and were not reimbursed; it’s related to your job; and you have proof of record. 
  • Using the myDeductions tool in the ATO mobile app. It helps record all your work-related deductions so you can go paperless with your tax affairs.

One of the nifty features is that from July 2016, this app will allow you to pre-fill your completed deductions straight into myTax. 

Still averse to lodging it yourself? That’s OK as the app allows you to share the completed deductions with your tax agent directly.

This year, the myTax tool will allow the ATO to check your tax deductions in real time, and even present a message to you if your claims seem significantly higher than others in similar occupations with similar income. 

If you’re a rental property owner, the ATO says it will be keeping watch on excessive interest expense claims and incorrect apportionment of rental income and expenses between owners. 

“If you are claiming deductions for your rental property, be sure to include all your rental income and make sure that your property was genuinely available for rent when the expense was incurred,” Whyte says.

Remember, the deadline for getting your tax return in is October 31 so if you’re going to use a tax agent, you’ll need to make sure you contact them well in advance of this date. You can easily find registered tax agents here on the Tax Practitioners Board website.

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