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First Home Buyer Saver Scheme FHSS Explained | Increase your home deposit! Superannuation Australia - YouTube
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(upbeat music)
- What if
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you're currently saving
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or thinking about saving
a property deposit.
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I'm often asked,
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what is the best way to
save a property deposit?
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And what's the best way to
invest a property deposit
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until you have enough
to buy your first home?
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I'm Conaill Keniry from What if Advice.
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In this video, I'm going to show you
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the where and the how
to get that 15% return
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on your property deposit savings.
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That's a lot.
(upbeat music)
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A 15% return, sounds too good to be true.
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And you know what they say,
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if something is too good to be true,
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it often is, or illegal.
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Don't worry, I promise
this is completely legal.
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I mean, I'm pretty sure it's legal.
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There is a small amount
of money laundering
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through your superannuation,
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but hey, if the government
says it's legal, it's legal.
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In this video, I'm explaining
the First Home Saver Scheme,
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which is a government initiative
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to help you save for your first home.
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And I think it's a pretty awesome way
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to save a property deposit.
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It is a smidge complex,
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so I will do my best to explain
it simply in this video.
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However, to get your strategy just right,
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make sure you do your own homework.
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Make sure the rules haven't changed.
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Talk to me or talk to a financial advisor
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to make sure you're getting
the maximum benefit you can.
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Here's the general advice warning
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and let's talk property deposits.
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So what is the First Home Saver Scheme?
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It's a story about tax.
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When you get paid an
income from your employer,
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the tax you pay is called
your marginal tax rate.
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The more you make, the more tax you pay,
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and this can go up to 45%.
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To make things easier in this video,
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I'm just gonna use an average
income tax rate of 30%.
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Will change from person to person.
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Now, your superannuation.
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Super is a low tax zone that
we use for retirement savings.
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The government says, we're
gonna make everyone save
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a bit of their income
for their own retirement
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and you generally can't
touch it until you retire.
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However, in return, we're gonna give you
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a really great tax rate,
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which is 15% while you're
working and 0% in retirement.
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So, what's the point and
how does this help you
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with your property deposit?
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The First Home Saver Scheme,
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doesn't allow you to dip into your super.
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It allows you to add extra money to super
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and dip into that low tax zone.
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So, instead of paying 30% income tax,
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you can pay 15% tax inside super
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and bingo bango! You've
made 15% on your money.
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There is a little bit more to it than that
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and I wish the maths was that simple,
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but conceptually, if you were gonna take
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one thing from that this video it's that.
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It's adding extra money into super
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and the profit that you're
making, the saving you're making
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is that tax difference.
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So how does this game work?
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There are six simple steps.
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Step one, plan and prepare.
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Step two, add money to super.
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Step three, continue to add money to super
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without going over the limits.
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Step four, withdraw your money from super
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while considering the limits.
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Step five, use your money
to purchase a property
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and step six, rub your hands together
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and laugh while you enjoy that free money.
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Next, I'll go over these
steps in a bit more detail
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and finish up with some common questions
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that you will no doubt have.
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Step one, plan and prepare.
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Once you have a basic
understanding of this strategy
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and before you start contributing,
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it's best that you do some
planning and preparation.
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However, it is easier
for me to explain this.
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Once I explain the strategy,
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so I'm gonna come back to step one.
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Step two, add money to super.
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The most common way you can
add extra money to super
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is something called salary sacrificing.
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This is where your employer
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will withhold some of your
income and add it to your super.
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As this is pre-tax,
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you can think of it like,
instant tax deduction.
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As I was saying, when it goes
into Super you'll pay 15% tax,
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rather than your usual tax rate.
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Now, some employers don't always allow you
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to do salary sacrificing,
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or depending on your
situation or your strategy,
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this may not work for you.
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You can also make personal
contributions to super.
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In this case, you would
be contributing post tax.
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You can still get the same tax deduction.
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However, there's a form
you've got to fill out
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and you won't get that benefit
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until you've done your tax return.
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Step three, continue
to add money to super,
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without going over the limits.
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When adding money to super,
there are two limits or caps
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that you need to be aware of.
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The first one is the pre tax limit.
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Like, if you're making $60,000 per year,
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you can't just add all
of that money into super
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and not pay any income tax.
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So, there is a $25,000
per year per person cap
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on pre tax contributions.
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Which I know is a bit of a mouthful.
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Be aware the money your employer
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is currently putting into Super
makes up part of this limit.
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So let's say you're on $70,000 per year
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and your employer is adding
$6,650 to Super each year.
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That means you would
have about $18,000 left
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that you could contribute pre-tax.
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If you aren't claiming a tax deduction
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and adding money into super.
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The limit is $100,000 per person per year,
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and this is called a
non-concessional contribution.
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Step four, withdrawing
your money from super.
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Again, while considering the limits.
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Fast forward two years and
let's say you've contributed
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$20,000 into your Super and
you're ready to withdraw it.
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How do you do it? And how much do you get?
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First thing you need to do,
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is go to the ATO via your myGov account,
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and apply for something
called a determination.
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This is the ATO determining
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how much money you can get back out.
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The ATO determination
is calculated like this.
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Money contributed, plus
investment earnings,
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minus withdrawal tax.
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Money contributed,
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so like the $20,000 we
were just talking about,
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is based on after you've
paid that 15% tax.
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So this number will be $17,000.
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For your investment earnings,
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the ATO won't look at what
your Super has actually made
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on the share market.
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Instead, it will give everyone
the same rate of return.
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This is based on something called
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the Shortfall Interest Charge or SIC,
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which is currently at 3.1%
and I'll put a link below
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for you to see what the
current rate is depending on
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when you're watching this video.
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In this example, I'm just gonna use a flat
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$1,000 for investment earnings.
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If you tryna work this
number out for yourself,
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have a play with a compound
interest calculator
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and the rate of return and
how much you're contributing,
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time, et cetera,
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and you should be able
to get a pretty good go.
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Minusing withdrawal tax.
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I think this is one of the
most complicated elements.
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You also get taxed when you
take the money out, sort of.
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When you take your property
deposit out of super,
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you are charged your regular
marginal tax rate, minus 30%.
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Let's say you have a
34.5% marginal tax rate.
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They'd take the 30% off that
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and they would charge you 4.5%
tax on the withdrawal amount.
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So in this case, that would be $810.
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Giving you a total withdrawal
determination of $17,190.
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Once you have your determination,
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you can then send that to
your superannuation company,
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to withdrawal the money,
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allow ballpark full weeks
to receive those funds.
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Last quick comment
about withdrawing money.
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You have limits on the withdrawal as well.
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If you do this strategy
over a one year period,
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you can take out $15,000 per person.
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If you did this strategy over
a two year period or more,
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you would have a limit
of $30,000 per person.
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If you're in a couple,
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that could be $60,000
over a number of years.
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Step five, use your money to
go and purchase a property.
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Great, you've saved a bunch of money
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and you're ready to go shopping.
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The most important thing here is timing.
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So, you've got your determination
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and you've got your withdrawal.
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You cannot sign your property contract
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before your determination,
it's best if you do,
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your property contract,
after your withdrawal.
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Technically you can sign
your property contracts
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between the two of those.
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However, if you do, you've
got a 14 day period,
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to then apply for that withdrawal.
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Step six, rub your hands together
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and laugh while enjoying that free money.
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So, I think,
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this is a good time to do a
bit of a quick comparison.
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We just saw that $20,000
turned into $17,190
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after tax using this game.
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That same person with
the exact same tax rate
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not using this game, would
have been paid $13,100
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in their pocket after tax.
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That's $4,000 of free, free money.
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Now, the benefit will change
from individual to individual
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based on a few factors.
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Sure version is, the more you contribute
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without going over your limits,
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the better result you're gonna have.
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And that's the six basic steps
to a larger property deposit.
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However, I skipped over step one.
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So let's go back.
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Step one, plan and prepare.
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You need to create a plan before you start
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to make sure that you
get the maximum benefit,
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or if you don't stuff it up along the way.
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So here are a few things
you need to consider or do.
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I'm gonna run them through
them pretty quickly.
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So what I'll do is I'll leave
a link below to the full list
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and you can work through
them in your own time,
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as you go through the process.
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You need to check that
your nominated superfund
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is participating in this game.
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Ask your fund about any fees, charges
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or insurance implications.
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Check that your details match the,
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between your superfund and the ATO.
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If you were planning to sort
out your superannuation,
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like consolidate them all into one,
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now is a really good time
to do that before you start.
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Do a lost super search to
see, if you do have any funds
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or if you're unsure what
superfunds you have.
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Work out, how much you're
able to contribute to super
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based off your employer's
contributions currently
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and then minus off the $25,000.
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Work out your personal budget
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to confirm how much you can save,
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remembering that,
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what you can save each
week in your pocket,
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isn't necessarily the amount
you're gonna tell your boss
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to contribute to super.
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Because you're currently saving after tax,
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you need to work it out pre tax.
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Use maybe paycalculator.com that I use
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to help you do this maths, or
again, talk to somebody else.
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You need to create a way
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for you to track your
contributions to super.
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Record the amount, the type, the date,
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of those extra contributions.
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Make sure you're aware
of the current rules
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around the first time saver scheme.
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If this all sounds too hard
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and you're worried
you're gonna stuff it up,
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talk to me or your friendly
neighborhood financial advisor.
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Now, that's the six steps to
a larger property deposit.
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However, you probably
still have some questions.
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So here are some common ones that I get.
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Am I eligible?
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You need to be over 18
to make a withdrawal,
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but technically you
could start contributing
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earlier than that, and you
must be buying your first home.
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So you kind of had an
investment property before
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or a block of land, (indistinct).
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Does this have any impact
on my HECS or HELP debt?
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Great question.
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There is a clause that says
when you're withdrawing money,
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anything that's owed to the Commonwealth,
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the tax office will withhold
before giving it to you.
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So, if you have an outstanding tax bill,
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if you owe child support,
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they will take this before
releasing the funds to you.
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However, your HECS or HELP debt
is not one of these things.
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It's not in that kind of category.
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So you do not have to pay off your HECS
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before you can do this scheme.
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So generally speaking,
your HECS is not an issue.
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How can I check my balance
and how much I can withdraw?
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Just superfund won't be the
most accurate place to check.
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Keep in mind, that your employer
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may not pay your Super
weekly or fortnightly.
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Even if you get weekly
or fortnightly payslips,
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often employers want pay super,
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until the end of each quarter.
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That's something you should
keep in mind for your strategy.
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The best thing to do is keep a
record of your contributions,
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including the date, amount, type.
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This will help you keep track,
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and you will actually be asked information
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when you request a determination.
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For an official and exact
amount available for withdrawal
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that can sit as everything,
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including the interest that you've earned,
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any extra tax you mind to pay,
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the way you actually do it is,
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apply for determination with
the ATO via myGov portal.
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Do I get to select which investment option
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my contributions are invested in?
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Yes, your money will go into
Super and invested with,
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whatever involves investment
option you've chosen.
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However, remember I said, how
much money you can take out
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isn't based on investment gains or losses
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so the share market, which is true.
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Although, you should still consider
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how your money is being invested
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and consider if you need
a lower risk option,
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especially if you're with a...
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or if you have a low Super balance.
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Can I only make one
withdrawal? Yes, only once.
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How long do I have to buy a property?
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Once you've made a withdrawal,
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you have 12 months to
sign a contract settlement
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and your move in date could be later,
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but the contract date
must be within 12 months.
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How long do I need to
live in the property?
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You need to live in the property
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for six months within the first 12.
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So, let's say your
property has a tenant in it
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when you purchase it,
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you wanna make sure that
that tenancy agreement
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ends within the first six months
so you're able to move in.
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What if I don't spend
the money on the property
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once I withdraw it?
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You have a few options.
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You can put the money back into super,
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or you can keep it outside super.
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However, you will get charged
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a first time saver scheme tax.
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This is a flat rate of 20%.
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That's an additional tax,
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and that's effectively the government
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asking for that, free money back.
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Can I get an extension?
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You can submit a request to the ATO
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to extend this 12 month period
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to a 24 month period if required.
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(upbeat music)
So that's it.
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That's the basics around
the first time saver scheme.
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I know there is a bit of a lot
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and it can seem like a
bit of a, complex journey.
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However, I do think the
juice is worth the squeeze.
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For more information, I'll
leave a link down below
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to some of the information
that we've got on our website.
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You can talk to me, your financial advisor
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to get more information.
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The ATO does have a pretty
good page on their webpage.
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A fraction information,
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but also check out the ATO community pages
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where people will ask questions
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and the ATO actually respond with answers.
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I found that, as a...it's
a pretty good resource.
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Also, here are some other
videos from our channel.
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Please check those out, please subscribe,
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and until next time, talk to you soon.
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