First Home Super Saver Scheme
Australian home buyers who may need a leg up when purchasing their first home could maximise specific government schemes. One of these is the First Home Super Saver Scheme (FHSSS). Introduced in the 2017-2018 fiscal year, the initiative aims to assist first-time home savers in saving for a deposit by making voluntary contributions to the super fund. This can later be withdrawn to put up a home loan deposit.
Let’s look at how the First Home Super Saver Scheme works, its benefits, eligibility criteria, and how it can help aspiring homeowners in Australia.
How does the First Home Super Saver Scheme work?
The First Home Super Saver Scheme (FHSSS) aims to let first home buyers make voluntary concessional (before-tax) and non-concessional (after-tax) contributions into their superannuation account and later use this as a deposit on the property.
FHSSS can be used to buy a brand-new or an already-constructed home. It is meant for first-home buyers who want to tap their savings and enter the property ladder.
The FHSSS lets you save up to a maximum of $15,000 in any one financial year and up to a maximum $50,000 for several years. The allowable amount may not be as significant for many home buyers who want to put up a larger deposit, but this scheme has tax incentives.
You can request the withdrawal of your scheme contributions, then have 12 months to sign a property contract or construct a residential dwelling. If you cannot buy a home within this period, the deadline can be extended up to 24 months. FHSSS clients must also occupy the house within the first six months of purchase.
What type of super contributions can I make?
The First Super Saver Scheme allows any of these contributions or a combination of two:
- Salary sacrifice contributions are pre-tax contributions made under an agreement between an employer and employee, where the employee sets a part of their wage or salary to be automatically contributed to their super.
- Personal voluntary contributions can be made directly to your super fund or from after-tax pay.
Clients who are planning to use the FHSSS should talk to employer about how often they can make contributions.
Bear in mind that the superannuation system in Australia allows up to a maximum of $25,000 per year at the concessional rate of 15%, and includes the minimum 10.5% super guarantee from the employer.
How much can I withdraw from the FHSSS?
Your FHSSS determination will determine the maximum releasable amount.
The maximum releasable amount counted towards the FHSSS for each financial year is $15,000. Across all years, the amount is $50,000.
You can withdraw:
- 100% of non-concessional contributions – or personal voluntary super contributions you have not claimed a tax deduction for;
- 85% of concessional contributions – from eligible salary sacrifice contributions;
- 85% of concessional contributions – from eligible personal voluntary super contributions that you have claimed a tax deduction for;
- Deemed earnings associated with your contributions.
The ATO will withhold tax from the amount you receive to help meet end of year tax liabilities. Once you withdraw the funds it is subject to a ‘withdrawal tax’ rate equal to the marginal rate (including Medicare levy), minus a 30% offset.
For example, your marginal tax rate was 34% and the Medicare levy 2%, the amount would be subject to a withdrawal tax of 6% (34% marginal rate, plus 2% Medicare levy, minus 30% tax offset).
Benefits of the First Home Super Saver Scheme
Tax advantages: Individuals can take advantage of the favorable tax treatment by contributing to superannuation. Voluntary contributions made under the FHSSS are taxed at the concessional rate of 15%, which can be lower than an individual’s marginal tax rate.
Savings: The scheme enables potential homebuyers to save a larger deposit by utilizing the higher concessional contribution caps applicable to superannuation. This can accelerate savings growth and help reach the deposit goal more quickly.
Earnings on contributions: Contributions made under the FHSSS, along with associated earnings, are also subject to the concessional tax rate within the superannuation account. This can result in additional growth of savings over time.
Who can use the First Home Super Saver Scheme?
Eligible individuals are:
18 years old and above can request a FHSSS determination (you can start to save before turning 18);
Must have no prior property owned in Australia before including land, investment, or commercial property (unless you’ve lost a previous home due to divorce, bankruptcy, a natural disaster, etc. which counts as financial hardship application);
No requirement for you to be an Australian citizen or an Australian resident;
No existing applications to withdraw money under the FHSSS.
Clients who want to use the FHSSS do not have to inform the employer or super fund that you intend to use the FHSSS. Let our loan professionals assist you throughout the process.
Is the First Home Super Saver Scheme right for you?
Using the FHSSS saves you up to $30,000 in just two years, but you might still fall short of saving this amount if you’re an average earner.
Despite the 30% tax offset on concessional contributions, you are still taxed for trying to put up a deposit on a property.
For instance, say that you earn $70,000 per year at a marginal tax rate of 34%. He salary sacrifices $10,000 on the super account for one financial year and another $10,000 over the next year. The tax on these contributions would be about $3,000 to leave with just $17,000 on the super account.
Even with a 30% rebate, you would still pay $1,200 in tax.
Plus, you may need more than the maximum amount for a 5% deposit on your chosen home. With house prices rising, withdrawing from the First Home Super Saver Scheme might just be a drop in the ocean.
There are other home loan options, such as a no-deposit home loan, to consider if you have a limited time and want to secure a mortgage now.
Talk to our mortgage specialists today to discuss your goals and super fund options.
