Article:

First home super saver scheme

16 February 2018

Michael Ryan, Wealth Adviser and Natasha Johnson, Associate Wealth Adviser |

Australians are entering the housing market later in life than previous generations. With house prices high, difficulty saving a deposit is a key barrier to getting into the market.

To reduce pressure on housing affordability, the government promised in the 2017 Federal Budget to help “Australians boost their savings for their first home by allowing them to build a deposit inside superannuation”.

From 1 July 2017 you can make voluntary concessional (before-tax) and non-concessional (after-tax) contributions of up to $15,000 a year, and a maximum of $30,000 over more than one year, into your super fund to save for your first home.

From 1 July 2018 you can then apply to release your contributions, along with associated earnings, to help you purchase your first home. You can start making super contributions from any age, but can't request a release of amounts under the First Home Super Saver (FHSS) Scheme until you are 18 years old.

To qualify you must:

  • have not previously owned property in Australia (or the Commissioner of Taxation has determined you have suffered a financial hardship as specified by regulations)
  • have not previously released First Home Super Saver (FHSS) funds
  • either live or intend to live in the premises you are buying as soon as practicable
  • intend to live in the property for at least six months of the first 12 months you own it, after it is practical to move in.

Things to consider:

  • When you receive the released amounts, the ATO will withhold tax that will be calculated at either your marginal tax rate less a 30% offset or 17% if the Commissioner is unable to estimate your expected marginal rate. Your payment summary will show the amount of tax withheld. You need to include this amount in your tax return for the year you request the release.
  • You must have received released amounts from the FHSS before you sign a contract to purchase or construct residential premises. Once your savings have been released, you have up to 12 months to sign a contract to purchase or construct a home.
  • If you do not sign a contract to purchase or construct a home within 12 months of receiving your FHSS amount, you can either:
    • apply for an extension of time of up to a maximum of a further 12 months
    • recontribute the amount into your super fund. This must be at least equal to your assessable FHSS released amount, less any tax withheld by the ATO
    • keep the released amount and be subject to a FHSS tax. This is a flat tax equal to 20% of your assessable FHSS released amounts.
  • Your assessable FHSS released amount is not included in your assessable income for calculating family assistance and child support payments. 

Example:

Michelle earns $60,000 a year and wants to buy her first home. Using salary sacrifice, she annually directs $10,000 of pre-tax income into her superannuation account, increasing her balance by $8,500 after the contributions tax has been paid by her fund. After three years, she is able to withdraw $27,380 of contributions and deemed earnings on those contributions. Her withdrawal is taxed at her marginal rate (including Medicare levy), less a 30 per cent offset. After paying $1,620 of withdrawal tax she has $25,760 that she can use for her deposit. Michelle has saved around $6,240 more for a deposit than if she had saved in a standard deposit account.

Michelle's partner Nick has the same income and also salary sacrifices $10,000 annually to superannuation over the same period. Together they have $51,520 that they can put towards a deposit; $12,480 more than if they had saved in a standard deposit account.

Disclaimer:

The information in this document reflects our understanding of existing legislation, proposed legislation, rulings, etc., as at the date of issue. In some cases, the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. The information is not, nor is it intended to be, comprehensive or a substitute for professional advice on specific circumstances.

The financial product advice or information in this document is of general nature only and has not taken into account the investment objectives, financial situation or particular needs of any particular person. Before making an investment decision on the basis of the advice above, a prospective investor needs to consider, with or without the assistance of a professional adviser, whether the advice is appropriate in the light of their particular investment needs, objectives and financial circumstances.