First Home Super Saver Scheme Explained
There is no doubt that buying into today’s property market is hard, but the government is aiming to help first home buyers through the tax-friendly savings vehicle that is superannuation.
The first home super saver scheme (FHSSS) was introduced in the 2017-2018 Federal Budget to improve housing affordability for first home buyers. It was part of a suite of measures designed to put downward pressure on rising housing costs.
“For those who are trying to save to buy their first home, we will support them by providing a tax cut on their first home deposit savings,” then Treasurer Scott Morrison said when announcing the measure in his Budget speech.
Government estimated that by using the plan, first home savers could potentially boost their savings by at least 30% compared to a standard deposit account.
How does the first home super saver scheme work?
The first home super saver scheme (FHSSS) allows first home buyers to make voluntary contributions – before tax or after tax – into their superannuation up to a certain amount which they can access later for their home deposit.
How Much can you Contribute?
You can contribute up to $15,000 a year and up $50,000 in total. But you also must not exceed the annual contribution limits ($27,500 per year for concessional contributions) which include the superannuation guarantee amounts your employer puts in.
Who can Access It?
You must be 18 years or older to withdraw amounts under the scheme, but you can make eligible contributions before then.
You also must never have owned property previously (and this is any kind of property including an investment property, vacant land, commercial property, a lease of land, or a company title interest in land) and not used the scheme before.
However, because it is assessed on an individual basis, couples, siblings, or friends can each use their own FHSSS contributions to purchase the same property if they are first home buyers. A couple could therefore each access their $50,000 in savings for a combined $100,000 deposit.
How is the First Home Super Saver Scheme Taxed?
The tax treatment of the scheme is especially beneficial in the case of concessional contributions to super – which are taken out of before-tax earnings – as the amount won’t be taxed at an individual’s personal income tax rate but rather the 15% superannuation tax rate in the fund (if you earn more than $250,000 it is 30%).
Non-concessional, aka after-tax contributions, are not taxed twice.
When can I Withdraw my Savings?
If you are over 18, you can request a FHSSS determination from the Australian Taxation Office (ATO) at any time. Of course, you will have had to have made voluntary contributions into your superannuation before then to be able access them in the first place.
You must have a FHSSS determination before you sign a contract to purchase any property.
To request the determination, log into ATO online services via myGov, go to the super tab and from the drop-down menu select Manage and then First home saver. The ATO will tell you your maximum FHSSS amount when you apply for the determination.
Once you have received the determination, you can apply via myGov again for a release of the amount specified in your FHSSS determination. And once your savings amounts have been released, you have up to 12 months from the date you requested the release of FHSSS savings to sign a contract to purchase or construct a home.
What are the Pros?
- The FHSSS enables you to save money for your first home in the tax advantageous structure of superannuation.
- The tax treatment is especially beneficial if it is saved via before-tax voluntary super contributions, and it is estimated it could boost potential savings for a deposit for a first home by 30%.
- The FHSSS can be used by two people, which means a couple can combine their saved amounts for a deposit.
- FHSSS amounts earn the shortfall interest charge within superannuation, which is 5.31% for the October to December quarter 2022, a much better rate than what you could get in a savings account or even a term deposit.
What are the Cons?
- There have been many incarnations of the First Home Super Saving Scheme and there is the potential that it could disappear in the future, and you may not be able to get out savings in the scheme. (That is probably unlikely given how politically unpopular that would be.)
- The limit of $50,000, which was increased from $30,000 on 1 July 2022, may not get you very far in terms of a deposit on a home with the average dwelling price in Australia in the June quarter sitting at $921,500, meaning a 20% deposit on the average home would be $184,300.