Are you a First home Buyer or know someone who is or will be? If so then read on!
The First Home Super Saver Scheme was introduced to help some first home buyers save a deposit faster. It lets you contribute extra money to your superannuation, and then access that money as part of a down payment for your first home.
The pros? Your contributions are taxed at a much lower rate than your income is, so you get to keep more of your money.
The cons, as we’ve discovered from talking to people who’ve used the scheme, is that the process is complicated, and it’s hard to get your money when you need it. This is why you need to speak with a qualified Financial Planner who can guide you through the minefield and help you get the best result possible.
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If you’re saving for your first home, we hope that our guide will help you decide if the First Home Super Saver Scheme, or FHSSS, is right for you so you can ask a Financial Planner better questions when you meet them.
How the First Home Super Saver Scheme works
With residential property unaffordable for many Australians at the moment, the government is keen to address the issue and score some political points. Enter the First Home Super Saver Scheme (FHSSS).
What you need to know
You make voluntary concessional and non-concessional contributions into your superannuation fund to save for your first home.
When you’re ready to buy, you apply to release your contributions along with associated earnings.
Interest earned on money saved in a bank account is taxed at your marginal tax rate. Money put into your super account as a pre-tax contribution is subject only to the 15% contributions tax.
The tax amount you can save will vary depending on your situation.
You must request and have your funds released by the Australian Tax Office (ATO) before signing a contract to buy your first home or you may have to pay FHSSS tax. It can take up to five weeks to have your money released by the ATO.
Most taxpayers earning more than $37,000 will get some tax benefit from the scheme.
How the FHSSS earns you more money
Put simply, the FHSSS is centred on tax minimisation and increasing the earning power of your money, since the extra money you put in and any earnings are taxed at the super concessional rate of 15%, making it a pretty good savings and investment plan depending on your financial circumstances.
Most of us pay considerably more than 15% tax on our earnings, with average income earners paying 32.5%. More than halving your tax burden can really make a difference, as many multinational companies headquartered in low-tax countries seem to have discovered.
But the FHSSS is a government program, after all, which means there are hoops to jump through.
The FHSSS is a far better option than a standard term deposit or bank account for saving for a first home.
If you were to use a standard bank account to save for your deposit, the money you’d put in would be after you’ve paid tax at your marginal tax rate, and the interest you earn would also be subject to tax at your marginal tax rate
If you put the money into your super account as a pre-tax contribution instead, then you would only pay 15% contributions tax, which is a lot lower than what you’re probably paying in income tax.
This means those on a marginal tax rate of 45% will pay around 17% tax on the withdrawal. If your tax rate is 32.5%, you’ll pay minimal tax on the withdrawal.
When you make a request and ultimately make a withdrawal from your FHSSS it will be taxed at your marginal tax rate, less a 30% tax offset
When to access your money
The ATO have advised the length of time it can take to receive money and how to make this work in line with the far faster-paced buying process.
They noted that while you can’t sign a contract to buy or build before receiving your funds, if you want to avoid paying the FHSSS tax (equal to 20% of your assessable FHSSS-released amounts), you do have 12 months (with a possibility of extending a further 12 months to a total of 24 months) from receiving funds to make a purchase.
In short, don’t request the release of funds before you’re ready to buy. Do your homework and get a feel for the market and what you want first and consider applying for the release before you start looking with serious intent to buy.
Will the scheme work for you?
You must be a first home buyer, and you’ll need to be over the age of 18 to request a release of your funds (though you can contribute from any age).
This means you’ve never owned property in Australia, including investment property, vacant land, commercial property, a lease of land in Australia, or a company title interest in land in Australia.
You must intend to live in the premises you’re buying as soon as practicable, and you must live in the property for at least six months of the first 12 months you own it.
Q: Can I withdraw as much as I want?
You can withdraw a maximum of $15,000 of your voluntary contributions from any one financial year and up to a total of $30,000 contributions across all years, plus associated earnings. But it’s not as simple as that, since whether the contribution came from your pre- or post-tax income will influence the amount available. You can withdraw 100% of your non-concessional (after-tax) contributions or 85% of concessional (pre-tax) contributions.
Q: How do I get started?
The first step is to talk to a Financial Planner who will call your superannuation fund. Confirm your nominated super fund will release the money, and ask about any fees, charges and insurance implications that may apply.
Your next step is to ask your employer about salary sacrificing (talk to your HR department if you’re not sure).
You can let your employer know the amount of your salary to be deducted, and it’s then sent straight to your super fund. This is considered a pre-tax contribution.
If your workplace doesn’t offer salary sacrificing, you can still access the scheme. You can make after-tax voluntary contributions, meaning this is not subject to tax upon withdrawing it. However, it means you won’t be taxed the lower 15% rate on super contributions – you’ll pay your full income tax rate. If you’re self-employed, then you can make contributions directly to your fund from your post-tax income.
Contact your Financial Planner to look at your fund and organise how to pay – it may be direct debited automatically, or you may be sent BPay details, for example.
Q: Can I only make contributions through my salary?
No. You can make the following types of contributions towards the FHSSS scheme:
voluntary concessional contributions – including salary sacrifice amounts or contributions for which a tax deduction has been claimed. These are taxed at 15%
voluntary non-concessional contributions that you’ve made – these are made after tax or if a tax deduction hasn’t been claimed.
There are limits to the amount of salary sacrifice contributions that can be made. A person can make up to $25,000 p.a in concessional contributions (pre-tax contributions) which also includes your employer’s compulsory contributions.
You can also make contributions from your after-tax pay, though you won’t get a tax concession upfront. You may also be eligible to receive a government co-contribution if you earn under $51,813 per annum.
Q: Can I take my money out whenever I want, and how do I access it?
There are some key details you’ll need to be aware of to avoid locking your money into the scheme. First up, you can only apply for release once.
You also need to wait to sign your contract to buy or build your home until after the funds have been released – failing to do so could see you liable to pay FHSSS tax. It takes around 25 business days for you to receive your money after you’ve been approved.
To release funds, you need to apply for a:
determination – this will tell you what you have available to withdraw if you were to do so right now. You can apply for a determination as often as you like, and you’ll be given your maximum FHSSS release amount.
release, which can be done online using your myGov account linked to the ATO.
Q: What if I don’t buy a house?
If you withdraw the funds and don’t end up buying a qualifying home within the 12-month timeframe (you can also apply for a 12-month extension), you must re-contribute the assessable FHSSS released amounts, minus any tax that’s been deducted within the 12 months period. Any non-concessional contributions released will not have to be re-contributed.
Once returned, these funds cannot be accessed again under the scheme. Should you choose to keep the money, it will be subjected to a FHSSS tax, equal to 20% of your assessable FHSSS released amounts.