ALP Proposes New Low Tax Saver Scheme For First Time Home Buyers

by Philip Morton, Investors Offshore.com

06 November 2007

A Labor government under Kevin Rudd would help aspiring first home buyers save a larger deposit by establishing new, low tax, First Home Saver Accounts, the ALP announced this week.

It suggested that over the first three years, Federal Labor’s First Home Saver Accounts would help around half a million first home buyers save a bigger deposit by establishing superannuation-style low tax savings accounts.

One of the greatest obstacles to buying a first home, Labor argued, is saving a deposit. A larger deposit will also reduce the debt burden for young homebuyers and can help them avoid incurring costly mortgage insurance.

The proposed First Home Saver Accounts would build on the arrangements for superannuation - allowing potential first home buyers to access similar tax breaks on their first home savings and unlock higher returns.

Savings with Labor’s First Home Saver Account would receive preferential tax treatment in two key ways compared to ordinary savings accounts, the opposition party revealed: savers would be eligible for a low tax rate of 15% on the first $5000 of income they deposit in their account each year - rather than the ordinary tax rate they would pay, and interest earned would be taxed at 15% or less.

Under an ordinary savings account, both contributions and interest earned on savings are taxed at the individual’s relevant income tax rate.

In addition to the first $5,000 in tax-preferred contributions an additional $5,000 a year would be permitted to be contributed towards a First Home Saver Account from after tax income without paying any further tax on that contribution, according to the Labor proposals. This is deigned to allow parents to help their children to save their deposit.

The proposed initiative would mean forgoing $600 million in tax revenue in the first three years, according to Labor estimates.

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