Chartered accountant GAIL FREEMAN offers pragmatic advice to a young couple wanting to buy his parents’ house.

Zane and his father Felix came to see me. Zane said: “Gail, this is so exciting mum and dad want to sell their house to me and my fiancé Katy.

“I know I can’t get the First Home Saver Super Scheme grant because I’ve already owned a house, but we want to minimise the tax we pay on our saved deposit and mum and dad are now both drawing pensions.”

I said I could assist them both.

“Firstly, Felix you can make downsizer super contributions. You must both be 55 or older and selling your own home, which must have been your main residence,” I told him. 

“As this is clearly the case, you and Annalise can contribute $300,000 each to superannuation. This amount doesn’t count towards your contribution cap. However it does count towards your transfer balance cap. You can leave these contributions in the accumulation phase permanently. So it would seem like a good option for you both.”

Felix looked pretty pleased and said he’d be keen to explore it further another time.

Then I turned to Zane: “I know that you owned a property previously, but I know that Katy has not previously owned a property in Australia. 

“The First Home Saver Super Scheme (FHSS) allows Katy to contribute to superannuation, get a tax deduction and pay tax on the earnings from it.

“Katy can make a voluntary contribution into super up to $15,000 a year with a maximum that can be withdrawn of $50,000. The property needs to be purchased within 12 months of approval. 

“Based on the timeline you outlined, Katy can contribute $15,000 this financial year and $15,000 next financial year. I know you’ll be looking for your property in January/February 2025 so you can apply to have the funds withdrawn then.

“The benefit is that each of those $15,000 voluntary concessional contributions will result in Katy getting a refund of the tax on that contribution when she lodges her tax return. 

“That would be about $5000 on each contribution. The super fund will pay tax on the $15,000 contribution of 15 per cent. When you’re ready to withdraw your FHSS balance, which is your balance plus notional earnings determined by the ATO, then you pay tax on those earnings.

“Clearly that is significantly less than the benefit Katy receives by getting the tax deduction. Katy cannot withdraw any amounts paid by her employer under the super guarantee scheme. Katy must also lodge a form with her super fund each year called a Notice of Intent to Claim a Tax Deduction.

“There is a process for releasing your savings. You need to apply for an FHSS determination. Once you have that determination from the ATO, you apply for a written release, which must be done within 14 days of the determination. 

“Only 85 per cent of eligible personal contributions are refunded as the balance is paid in tax, as I said earlier. You can do this before or after you sign the contract to purchase, but you must sign the contract within 12 months of signing the release. This is a fantastic way to maximise your deposit. We can fine tune it later.”

Zane said he had no idea they could do this. 

“Once we realised we couldn’t apply for the NSW State Home Saver grant, we thought that was it.”

If you need any help on the downsizer scheme, FHSS or any other related tax or superannuation matter contact the experts at Gail Freeman & Co on 6295 2844.

Disclaimer
This column contains general advice, please do not rely on it. If you require specific advice on this topic please contact Gail Freeman or your professional adviser. Authorised Representative of Lifespan Financial Planning Pty Ltd AFS Lic No. 229892.