How The First Home Super Saver Scheme Gets You On The Property Ladder Faster!
With this post, you will discover how the First Home Super Saver Scheme (FHSSS) can help you get into your own home faster.
Australia’s superannuation system through a recent government initiative allows you to save for your first home by making eligible personal voluntary contributions to your super account while taking advantage of the concessional tax deduction treatment within super.
In this article, you’ll learn what you need to know about how the scheme works and how it can help get you on the property ladder faster. So sit back, relax, and read on to learn everything you need to know about the program!
What is the FHSS scheme?
The First Home Super Saver Scheme is a government initiative (introduced in 2017) that allows you to make eligible personal voluntary contributions to your super account and take advantage of the concessional income tax deduction treatment within your super fund.
You can Also Make Eligible Non-Concessional Contributions
In a nutshell, it allows you to grow your savings faster and potentially buy your first home sooner with before-tax contributions.
The FHSS Scheme allows you to make extra concessional contributions to your super of up to $15,000 per financial year (currently capped until Jul 1 2022 at $30,000 in total)
You can make either:
Concessional (before-tax) contributions – these include salary sacrifice amounts and personal contributions for which you claim a tax deduction.
Or, non-concessional contributions – these are personal after-tax contributions you make from your after-tax income. This could be money you have had in savings.
How Does the Scheme Work?
The scheme works by allowing you to make eligible personal voluntary contributions to your super account of up to $15,000 per financial year, capped to a maximum of $30,000 for one individual ($60,000 when spouse contributions are included).
This cap is increased to $50,000 from 1 July 2022 ($100,000 including spouse contributions). These concessional contributions can be made from your after-tax income (salary or wages) or by salary sacrificing from your pre-tax income.
The More the Merrier
Also, for anyone wondering, if there are 3 or more qualified first home buyers (siblings or even friends) wanting to purchase the one (same) property, then all would be able to individually contribute the above maximum amounts.
In other words, 3 buyers would equal $90,000 before July 1 and $150,000 after July 1, 2022. However, each is restricted to a maximum eligible concessional contributions cap of $15,000 (that is, receiving concessional tax treatment) during any one financial year.
These additional FHSSS before tax contributions are separate from your employer’s compulsory super contributions.
The Contributions Cap Limitations
The maximum eligible concessional contributions cap to an individual superannuation fund from all sources is $27,500 per annum. Otherwise, you have extra tax withheld on any eligible non-concessional contributions above that.
Good Management is Key
If you make voluntary pre-tax contributions to your superannuation fund, and you’re planning on using the FHSS scheme, then you must let your fund know in advance. This is so that they can manage your account correctly, and keep track of the pre-tax contributions you’ve set aside for your home deposit. More on that a bit later.
What is Salary Sacrifice?
Salary sacrifice is an arrangement between you and your employer where you agree to voluntarily forgo a portion of your salary in return for benefits, such as making additional before-tax contributions to your superannuation fund.
The main advantage of salary sacrificing is that it can help you save money and grow your super balance faster because the before-tax contributions are made prior to withholding tax being deducted from your salary. In other words, you pay less withholding tax on these contributions, which leaves more money in your account to grow.
Eligibility Requirements for Super Salary Sacrifice
To be eligible to make super salary sacrifice contributions, you must:
– Be employed on a full-time, part-time or casual basis
– Have an employer that offers salary sacrifice arrangements; and
– Be paid $450 (before tax) or more in salary or wages in a month.
How Does the Scheme Affect My Marginal Tax Rate?
The incoming voluntary contributions you make to your fund under the scheme are taxed at a concessional rate of 15%. This is generally lower than your normal marginal tax rate, so you’ll have much less tax withheld on your contributions.
Additionally, any associated earnings on your investments within your fund will also be taxed at a concessional rate of 15%.
The Tax Offset Grows Your Nest-Egg Faster
When you withdraw your savings from your fund to put towards purchasing your first home, you’ll pay tax on the amount withdrawn at your marginal tax rate, minus a 30% tax offset.
That means, if your taxable income bracket is normally 32.5% (plus possible 2% Medicare levy), you’ll only pay 2.5% on the withdrawn funds. So, the FHSS tax offset allows you to grow your nest egg that much faster compared to saving your money outside of super.
Capital Gains Tax Exemption: Super saver withdrawals from your fund are exempt from capital gains tax (CGT). This means that any growth in the value of your investments while sitting in your super scheme will not be taxed when you withdraw money to put towards your first home.
What are the Eligibility Criteria for the First Home Buyer Scheme?
To be Eligible for the Scheme, You Must:
Be 18 years of age or older
Have never owned a property before (either in Australia or overseas), including an investment property or commercial property
Not have previously received a release of FHSS funds
Not have already made a request to withdraw FHSS funds (you can only make one withdrawal per individual contract).
Intend to live in the property as your primary place of residence for at least six months within the first 12 months of ownership.
You can Purchase a Home with Someone Who is Ineligible
Even if you marry someone who is not a first-time home buyer and you wish to purchase your new family home in both names, you can still use your FHSS scheme savings.
The FHSSS is open to any applicant who meets the requirements and criteria established by the program. This implies that eligible couples, siblings, or friends may each use their own eligible FHSS scheme contributions to put towards acquiring the same property.
If any of them have previously individually owned a home (which makes them ineligible), it doesn’t stop anyone else who is eligible from applying.
Are there Any Fees with the Super First Home Scheme?
There are no additional fees or charges associated with making contributions to your super account under the FHSS scheme. However, there may be fees and charges associated with your fund, such as investment fees and insurance premiums.
If you’re salary sacrificing to your super account, your employer may also charge administration fees. These fees are generally deducted from your salary before it is paid into your super account.
This FHSS Example Demonstrates How it Works
As mentioned earlier, up to $30,000 can be withdrawn per person ($60,000 for couples). From 1 July 2022, the maximum amount will increase to $50,000 per person ($100,000 for couples).
You Must Call it Home for at Least 6 Months
You must also intend to live in the property as your primary residence for at least six months of the first 12 months after purchase. Depending on your personal objectives you are free to use it as an investment property after that.
First Home Super Saver Scheme Example
Let’s say, someone is earning $60,000. They want to put $10,000 of that salary towards a house deposit. If they put it in a standard bank savings account (A) as after-tax contributions, they will pay around $3,250 of the $10,000 in tax.
However, if they put that $ 10,000 as a before-tax contribution into their FHSSS Account (B) instead, they will be taxed at just 15%. This means they will only pay around $1,500 in tax. That’s a substantial amount of extra money towards their first home instead of towards their tax bill.
How Money will Work for You While You Sleep
So, when they withdraw their money, including any eligible investment earnings, they will get taxed at their marginal tax rate of 32.5% (plus a possible 2% Medicare levy) minus an offset of 30%. In effect, the income tax payable will only be 2.5% when they withdraw their money.
Not only that, this after-tax loss will be canceled out somewhat by the fact that Account B (their Superannuation account) will in all likelihood be earning above 3% interest while they have their money in it, which is going to be better than any standard deposit account.
Summarizing the Above
However, many who want to use super salary sacrifice contributions for a home deposit might be wondering whether it’s better to put it into a regular bank account (A) or an FHSSS Account (B).
When it comes to taxable income, Account (B) is the better option. With account (A), they’ll be taxed at their marginal rate of 32.5%. Plus they will be fully taxed on any interest earned.
What is the FHSSS Application Process?
You can apply for the saver scheme online through your myGov account. To do this, you will need to:
- log into your myGov account
- select ‘superannuation’ from the main menu
- select ‘First Home Super Saver Scheme’
- follow the prompts to complete your application.
- you will need to provide the following information as part of your application:
- your name and contact details
- your date of birth
- your tax file number
- your superannuation fund details.
An Important Message About Withdrawal of Funds
Once you have applied, you will receive a letter from the ATO confirming your eligibility for the scheme. You can then start making eligible contributions to your super account.
It’s important to remember that you can only make one withdrawal under the scheme. This means that you need to be sure that you are ready to buy or build a home before you make any withdrawals from your super account.
If you have any questions about the saver scheme, seek professional advice. You can contact the ATO, your superannuation fund, or your financial advisor.
Update on the First Home Buyers Super Saver Scheme 2022
- Starting from the first of July 2022, the before tax eligible contributions that any one qualified individual can commit to their saver scheme maximum realizable amount across all years is going to be raised from $30,000 to $50,000. However, the yearly and total limits of annual savings (including after-tax contributions) that can be put towards accumulating that final total will still stay at $15,000 for each tax year.
- The limit of $50,000 of the usable saver deposit money is only going to apply to any FHSS Determination requests made from July 1, 2022 onward. You can’t apply for the increased limit prior to that date. It will remain at $30,000 until that date.
What the Eligible Contributions Limits Apply to
The increased eligible contributions limit will apply to both voluntary super contributions, salary sacrificed contributions, as well as eligible government contributions such as the co-contribution and low-income superannuation tax offset (LISTO).
If you make a request for an FHSS determination on or after 1 July 2022, any eligible contributions made in fiscal years prior to 2022-23 will count towards your $50,000 limit.
You can Increase Existing Limits
This means that if you have already made FHSS contributions of $30,000, you can make additional contributions of up to $20,000 from 1 July 2022 onward.
Keep in mind, front and center, that you can only make one withdrawal under the FHSS scheme. This means that you need to be sure that you are ready to buy or build a home before you make any withdrawals from your super account.
What are Eligible Contributions?
The following types of super contributions can be counted towards your FHSS maximum releasable amount:
voluntary personal after-tax contributions (non-concessional contribution)
super salary sacrifice (concessional) contributions
low-income superannuation tax offset (LISTO) payments.
There are Other Contribution Avenues that can Be Used
Voluntary super contributions are equivalent to a tax-advantaged retirement savings plan. There are a couple of things you should know about them:
- You can negotiate a voluntary salary-sacrifice agreement with your employer if you want to contribute more to your superannuation.
- You can voluntarily contribute funds from your pre-taxed income (for example, money in a savings account) and request a tax deduction after you submit your income tax return. You must submit a “notice of intent” form to your super fund and in return get an official acknowledgment from them in order to confirm the deduction.
Contributions that don’t Count Towards Your FHSS Maximum Releasable Amount
mandatory employer contributions (such as the Superannuation Guarantee)
any amounts released from your super account under the Transition to Retirement Income Stream rules
personal deductible (concessional) contributions
excess concessional contributions.
If you make a voluntary after-tax contribution to your fund and claim a tax deduction for that contribution, it will count as a personal deductible contribution and cannot be counted towards your FHSS maximum releasable amount.
If you are unsure about non-concessional contributions, contact your financial advisor.
When can I Withdraw Money Under the Super Saver Scheme FHSSS?
There is a Mandatory Waiting Period
After you have commenced making contributions, you’ll need to wait at least 12 months before you can apply to withdraw them. And when you do apply, you’ll only be able to withdraw amounts equal to your total contributions (plus any associated earnings) – so it’s important to keep track of how much you’ve contributed.
You can Withdraw Your Savings (and Any Associated Earnings) Once You Have:
– Submitted an FHSS Determination form (through myGov online)
– Signed a contract to buy or build a home; and
– Made a request to your saver fund to release your savings.
The ATO is the Ringmaster of Funds Dispersal
When it comes time to withdraw your money, the Australian Taxation Office (ATO) will notify your superannuation fund to release the money, which will then pay it into your designated bank account.
Make Careful Note of the Following
Again, before you sign any contract to buy any home that will give you an ownership interest, you must have an FHSS determination. Contracts to acquire vacant land (with the intent to build) are also included.
We repeat you will disqualify yourself from obtaining an FHSS Determination once you have signed a contract to purchase any home if you haven’t already applied and received one.
Time Limits that Need to Be Adhered To
You must withdraw your savings within 12 months of receiving the release authority from the ATO. If you don’t withdraw your savings within this time frame, you will need to reapply for release authority.
Any Outstanding Government Debt Could Slow You Down
It should be kept in mind that any outstanding Commonwealth debts will be offset by the ATO, and any applicable tax will be withheld. You should check with the ATO in advance to establish the status of any outstanding debts.
You can only make one withdrawal from the FHSS scheme
Applying for a release of funds should be considered and calculated very carefully. A release under the super saver scheme FHSSS can only be requested once. Exceptions are possible though if it can be demonstrated to the ATO that you’re financial situation warrants it, such as job loss, financial hardship through a divorce, going bankrupt, or undergoing severe illness.
What is the FHSS Determination?
The FHSS Determination is a legal document that sets out the rules for the first home scheme. It includes information on:
– Who is eligible for the scheme
– How much you can contribute
– When you can withdraw your savings, plus associated earnings
– The tax implications of the scheme
Understanding the ATO FHSS Determination Rules is Critical!
Before you go out into the property market and sign a contract to buy any property that gives you an ownership stake in it, you must receive an FHSS determination. Purchases of vacant land under contract are also included if you intend to build within 12 months. The vacant land concession could be extended to 24 months under special circumstances on application to the ATO.
To be clear, make sure you don’t jump the gun into the property market, because if you sign a contract to buy any home or property, then you might have forfeited your right to request an FHSS determination.
Be Careful, it can Only be Used Once
You can only use the FHSS scheme once. If you’ve already used it to buy one property, then you can’t use it again to buy another property, even if you have sold the previously owned property.
This ATO FHSS Determination link will give you more detailed information and is a must read before signing any property purchase contract
How to Apply for FHSS Determination
In a nutshell, you can electronically apply using your myGov account where you can link through to the ATO online services platform. The ATO will tell you your maximum FHSS release amount when you apply for an FHSS determination. It’s important that only eligible contributions should be included in your FHSS request.
Use this Request FHSS Determination Link for more guidance
How Long Does FHSS Determination Take
The ATO will take around 15 – 21 days to process an FHSS release request. This is the time it takes for the ATO to assess your application, make a determination and notify your Superannuation Fund. If your application is complete and meets all the eligibility criteria, you should receive your FHSS release authority within this time-frame.
Getting it Right the First Time Will Save Time
However, if your application is incomplete or needs further clarification, the Australian Taxation Office may take longer to process it. In this case, you will be contacted by the ATO and asked to provide additional information or documents.
Once you have received your First Home Super Saver Scheme release authority from the ATO, you have up to 12 months to request a release of funds from your super fund. If you do not request a release within this time frame, your FHSS release authority may expire.
How do I Know if the First Home Super Saver Scheme is Right for Me?
The super saver scheme can be a great way to save for your first home. However, it’s important to speak to your super fund or financial adviser to make sure it’s the right option for you. They will be able to help you understand how the scheme works and whether it’s suitable for your situation.
You should also be aware that there are a number of risks associated with the scheme. For example, if you withdraw funds and you don’t use your savings for a deposit on a home, you may have to pay taxes on them.
Is the FHSSS Worth it?
Let’s take a closer look. If you’re saving to buy your first home, the FHSSS is a great way to help you save for your first home deposit.
The Scheme was introduced in 2017 to help Australians save for their first home deposit faster. The scheme allows individual first-time home buyers to make voluntary contributions and then withdraw these amounts (plus associated earnings/less tax) to help with a deposit on their first home.
Since its inception, the FHSS tax scheme has helped over 50,000 Australians boost their savings for a first home. However, with property prices at an all-time high across the country, is the Scheme really worth it?
First Home Super Saver Scheme Pros and Cons
There are pros and cons to consider before deciding if the super saver scheme is right for you.
- Boost your savings – The First Home Super Saver Scheme can help you boost your savings for a deposit by up to 30%. This is because the money is taxed at a lower rate than if it was kept in a standard savings account.
- Save on stamp duty – In most states and territories, first-time buyers who purchase a property using money from the First Home Super Saver (FHSS) Scheme are also eligible for stamp duty concessions (conditions apply). This can save you thousands of dollars on the purchase price of your home.
How to Avoid Lenders Mortgage Insurance When You Have a Low Deposit
You may also be eligible to book a spot on the First Home Loan Deposit Scheme. This is a Federal Government initiative that enables first home buyers to purchase a home with a 5% deposit and not have to pay Lenders Mortgage Insurance (LMI)
This is a huge plus for those first-home buyers struggling to accumulate enough funds to allow them to get a foot in the door of the property ladder. Contact your mortgage broker who will provide the information you need to understand how that program works.
- Limited to $15,000 per financial year per individual – The maximum amount you can contribute to your super fund under the scheme is $15,000 per financial year (or $30,000 per annum in total if you’re buying with a partner). This may not be enough to make a significant dent in the deposit for your first home, especially if you’re looking to buy in a major city.
- Not all states and territories offer stamp duty concessions – While most states and territories offer stamp duty concessions to first-time buyers who purchase using money from the FHSS scheme, there are a few that don’t. These include Victoria, Tasmania and the Northern Territory.
- If you owe the government money, such as the balance owed for a higher education loan program (HELP) they will subtract that from any voluntary super contributions you make.
Seeking Personal Financial Advice can be Productive
Keep in mind that any withdrawal will reduce your overall super balance, so it’s important to weigh up whether this is the right decision before proceeding. Getting personal financial advice from a financial advisor may help you avoid future financial hardship.
So, is the scheme worth it? Ultimately, this is a decision that you will need to make based on your own personal circumstances. If you’re eligible for the scheme and think it could help you save for a deposit faster, then it may be worth considering. However, if you’re not sure if it’s right for you, speak to a financial advisor to get expert personal financial advice.
What Would Happen if I didn’t Use My
Savings for a House Deposit?
If you don’t use your savings (and any associated earnings) for a deposit on a home, you can either:
– Keep them in your super account; or
– Withdraw them from your super account and pay any applicable taxes (conditions may apply) when you submit your next tax return.
However, you should get personal financial advice from your superannuation fund or financial adviser if you want to withdraw money for something other than a home deposit. They will be able to provide you with more information about the tax implications of doing so.
It’s important to note that the FHSSS is not a free ride – you will still need to make regular mortgage repayments to your credit provider on your home loan. However, the scheme can help home buyers save for a deposit quicker than if they were saving outside of their super fund with after-tax contributions. And as we all know, every little bit counts when it comes to buying a home!
So there you have it! The First Home Super Saver Scheme is a great way to save money for a first house deposit. Check the regulations to ensure you’re eligible and keep track of your contributions so you can withdraw them when you’re ready.
The material in this post is generic in nature and does not address your personal unique circumstances. Before making any decisions, you should think about whether the First Home Super Saver Scheme is right for you. We highly recommend before you decide whether or not to use the program, you should consult with your super fund or financial advisor about any possible difficulties you could encounter.