How can the First Home Super Saver Scheme help you secure your dream home?
Introduction
One of the most significant hurdles for potential home owners is saving up for a sufficient deposit to secure a home loan. To address this challenge and to alleviate the burden of housing affordability, the Australian Government introduced the First Home Super Saver (FHSS) scheme in the 2017–18 federal budget.
The FHSS scheme is specifically designed to assist first-time home buyers by enabling them to make voluntary contributions to their superannuation fund. This approach offers dual benefits: it allows for substantial tax savings on these contributions, and it facilitates the accumulation of a larger deposit.
By leveraging the concessional tax rates applied to superannuation contributions, individuals can effectively increase their savings through reduced tax liabilities, leading to a compounding effect on their deposits.
Ultimately, these savings can be withdrawn from the super fund and used as a deposit for purchasing or constructing a first home. This strategic saving mechanism not only enhances the ability to save more quickly and efficiently but also provides a structured path to home ownership for first-time buyers.
Key takeaways
- The FHSS Scheme helps first-time Australian home buyers save for a deposit via their superannuation.
- Eligible participants must be over 18 and first-time property owners in Australia.
- The scheme accepts both concessional and non-concessional contributions.
- Consulting a financial advisor is recommended to fully benefit from the scheme.
What is the First Home Super Saver Scheme?
The First Home Super Saver Scheme offers a pathway for first-time home owners to contribute to their superannuation funds and later withdraw them to use as a deposit for purchasing or constructing their primary residence. Designed to simplify acquiring your initial home, the scheme sets specific eligibility criteria and guidelines for accessing your savings.
Who is eligible for the FHSS scheme?
To qualify for the FHSS scheme, individuals must:
- Be 18 or older when applying for the release of funds.
- Be a first home buyer, having never owned property in Australia (including investment property, vacant land, or commercial property)
- Plan to live in the home for at least 6 months within the first year of purchase.
- Have not previously requested a release under the FHSS scheme.
For more information on eligibility for the FHSS scheme, visit the ATO’s official website.
How to use the FHSS scheme?
If you qualify and wish to use your superannuation towards a deposit on a home, here’s the process to follow:
Start by making voluntary contributions to your superannuation, either before tax (such as salary sacrifice) or after tax. There's a cap of $15,000 on how much you can contribute in any financial year for this scheme.
When purchasing your home, apply for an FHSS determination via the Australian Taxation Office (ATO) through your myGov account. The ATO will then inform you of the amount you can withdraw and any tax implications.
After receiving your determination, apply to the ATO for the release of your savings, known as a ‘request for release.’ The ATO instructs your super fund to release the funds first sent to the ATO. The ATO deducts applicable taxes and sends the net amount to you. This process may take 15–25 days.
You have 12 months from your ‘request for release’ to use the funds to buy or build your first home.
How much and what types of contributions can be made to the FHSS scheme?
Under the First Home Super Saver (FHSS) scheme, individuals looking to save for their first home can voluntarily contribute to their superannuation fund. These contributions are categorised into two main types and are subject to specific limits:
Include salary sacrifice amounts or any contributions for which a tax deduction is claimed. Such contributions are typically taxed at 15% within the super fund.
Comprise personal contributions made from after-tax income for which no tax deduction has been claimed.
For both types of contributions, the FHSS scheme permits you to apply for the release of up to $15,000 from your voluntary contributions in any given financial year as part of your eligible contributions. Furthermore, only contributions made from July 1, 2017, are eligible for withdrawal under this scheme.
What is the withdrawal limit from the FHSS Scheme?
The FHSS scheme maximum release amount is based on the contributions you've made that are allowed, considering both the limits for each year and the total overall limit, plus some extra earnings calculated on those contributions.
This total includes:
- 100% of your personal voluntary super contributions not claimed as a tax deduction (non-concessional contributions).
- 85% of your salary sacrifice contributions (concessional contributions).
- 85% of personal voluntary super contributions for which you have claimed a tax deduction (concessional contributions).
- An amount representing deemed earnings on the above contributions.
The maximum you can withdraw with the FHSS scheme includes up to $15,000 from a single year's contributions and $50,000 from all combined years. This is before any extra earnings are added to these amounts.
What are the tax implications when withdrawing funds under the FHSS scheme?
When you withdraw funds under the FHSS scheme, the Australian Taxation Office (ATO) withholds tax from your released amount. This withholding tax is calculated based on your expected marginal tax rate plus the Medicare levy, from which a 30% tax offset is subtracted.
If your marginal rate cannot be estimated, a flat rate of 17% is applied. The withheld amount is meant to cover your tax liabilities for these funds at the end of the financial year.
When you file your tax return, you must include the assessable FHSS released amount listed on your payment summary as income for the year you withdrew it. Also, report the tax withheld to ensure you're paying the correct amount. This step makes sure your taxes are accurately calculated. This approach ensures that your tax amount is accurately calculated and any excess tax is refunded.
First Home Super Saving Scheme Example:
Alex, earning a gross salary of $90,000 annually, saves $250 per week towards their first home deposit. This strategic decision prompts exploring the financial impacts of saving through traditional means versus utilising the FHSS scheme. By opting for the FHSS, Alex benefits from the scheme's tax-efficient structure. Here's a detailed comparison of the two approaches:
| Aspects | Saving outside super | Saving inside super using salary sacrifice |
|---|---|---|
| Gross Amount | $250 per week | $250 per week |
| Marginal Tax + Medicare Levy | 32.5% ($81.25) | Contributions Tax (15%): $37.5 |
| Net Savings | $168.75 | $212.5 |
| Net Annual Savings | $8,775 | $11,050 |
Alex saves $250 every week by putting it into a special savings plan called the FHSS, which is part of their superannuation (a type of retirement savings in Australia). This plan has a lower tax rate of 15%, unlike the usual higher taxes Alex would pay on regular savings. Because of this lower tax, Alex can save an extra $2,275 yearly for their house deposit.
The FHSS scheme helps smartly save money because it uses lower taxes and ensures the money is only used to buy a first home. This means Alex can't use this money for anything else, which helps keep the focus on saving for a home. This plan is an excellent fit for Alex's dream of owning a home.
Pros and Cons of the FHSS scheme
| Pros | Cons |
|---|---|
| Tax efficiency: Offers tax benefits through concessional tax rates on voluntary contributions. | One-time release: The scheme permits a single fund release which limits access flexibility. |
| Higher returns: Potential for higher investment returns within the super fund than standard savings accounts. | Complex rules: Navigating the scheme's eligibility and contribution requirements can be challenging. |
| Increased savings cap: Individuals can save up to $50,000 annually, with a $15,000 yearly cap. | Debt offset: Outstanding debts with the government can reduce or delay the FHSS amount received. |
| Associated earnings: Along with contributions, associated earnings calculated on these contributions can also be released. | Impact on retirement savings: Early withdrawal decreases superannuation balances and affects future retirement funds. |
| Individual eligibility: Couples, siblings, or friends can access their savings for the purchase of the same property, thus enhancing their collective buying power. | Occupancy requirement: The need to live in the property shortly after purchase and for at least 6 months within the first year restricts flexibility, especially for those considering investment properties. |
Tips to save under the FHSS Scheme
If you are willing to maximise your savings for your first home under the FHSS scheme, consider these strategies:
- Engage in salary sacrifice: Work with your employer to initiate a salary sacrifice arrangement, which allows you to allocate a portion of your pre-tax income directly into your superannuation. This method can efficiently grow your savings while offering tax benefits.
- Increase savings with personal contributions: Supplement your super balance by making personal contributions from your after-tax income. If possible, claim these contributions as tax deductions to enhance your savings potential further.
- Stay informed on scheme updates: Regularly check for any changes to the FHSS scheme rules or contribution guidelines. Being up-to-date ensures you maximise the scheme's benefits without inadvertently violating its terms.
- Monitor your contributions: It's essential to track the amounts you contribute to ensure they align with your saving goals and the FHSS scheme's operational framework, even without focusing on the specific caps.
- Leverage professional advice: Consult a financial advisor for personalised advice tailored to your financial situation and goals. A professional can offer insights on optimising your contributions and navigating the complexities of the FHSS scheme.
Ending Note
First home ownership is a significant milestone for many Australians, and the First Home Super Saver Scheme offers a unique opportunity to save for this achievement tax-efficiently.
By understanding the scheme's eligibility criteria, contribution rules, and potential benefits and drawbacks, you can decide whether the FHSS is right for you. With strategic planning and professional guidance, you can maximise your savings potential and achieve your dream of owning a home sooner.
However, if you need help arranging finance for your property or require expert advice on personal taxation and superannuation strategies, please visit our website or call us. Our team is dedicated to helping you achieve your first home ownership goals and offers tailored solutions to your needs.o
