Saving a deposit to buy your first home can be quite daunting and purchasing an affordable first home can be an even greater challenge.
In response to this affordability issue, the Federal Government has introduced the First Home Super Saver Scheme (FHSSS) to help Australians buy their first home.
How does it work?
Under the scheme, you can make eligible, voluntary contributions into your superannuation which you draw on to help with the purchase of your first home. There are limits to how much you can contribute to your superannuation.
- Singles can contribute up to $15,000 per year or $30,000 per lifetime limit to their superannuation.
- Couples can contribute up to $30,000 per year, up to $60,000 limit collectively.
Not all superannuation will participate in this scheme so it’s best to check with your superannuation before implementation.
How do I contribute to First Home Super Saver Scheme?
Contributions must be voluntary which does not include a compulsory super guarantee by your employer. You can make eligible voluntary contributions via the following;
- Salary sacrifice arrangement with your employer or;
- Non-concessional (after-tax) contribution to your super account.
- Personal Contributions (Self-employed Only): If you are self-employed, you can make personal contributions from your after-tax income and claim a tax deduction at the end of the financial year.
Eligible voluntary contributions can be made from 1 July 2017, and along with investment earnings as determined by the Australian Taxation Office, can be withdrawn to purchase a first home from 1 July 2018.
It is important to be mindful of your contribution caps prior to contributing into your super. Speak to a financial planner for further details.
For the 2018/2019 financial year, the annual contributions caps are:
- Concessional (before tax) contributions cap: $25,000
- Non-concessional (after-tax) contributions cap: $100,000
How do I qualify for this scheme?
Participants in the FHSSS must:
- Be aged 18 years or older,
- Have never owned a property before,
- Have never previously requested a release authority in relation to an FHSSS determination.
The FHSSS will not impact your social security entitlements.
If you have suffered financial hardship and previously owned a home, you may still be eligible to participate in the FHSSS subject to ATO’s approval.
Example: Boosting Jane’s first home deposit*
Jane earns $70,000 a year and wants to buy her first home. Jane organised a salary sacrifice arrangement with her employer where she annually directs $10,000 of pre-tax income into her superannuation account. This increases her balance by $8,500 after the government contributions tax (15%) has been paid by her fund.
After three years, she can withdraw $25,892 of contributions and deemed earnings on those contributions. Her withdrawal is taxed at her marginal rate (including Medicare levy) less a 30% offset.
*Source: The Australian Government Fact Sheet 1.4 First Home Super Saver Scheme Budget 2017.
How do I make contributions to my Super?
There are a number of ways of making additional contributions into your superannuation. You will need to speak to your Super Fund about how to make additional contributions (after-tax) or your employer regarding a salary sacrifice arrangement.
How do I withdraw my money to buy a house?
You can check in with you superannuation advising of your account balance at any time. When you are ready to access your eligible contributions from your super account under the FHSSS, you will need to apply to the ATO. At the time of your application, the ATO will calculate and apply any earnings that can be released.
Please note: There are several important things to keep in mind when accessing the FHSSS scheme:
- You can only apply for release once.
- Do not sign your contract to purchase or construct your home until you have received your money under the FHSSS scheme.
- After you have requested the release, it may take up to 25 business days for you to receive your money.
Do I have to pay additional tax when my eligible contribution is under the FHSSS scheme?
Release of your contributions and deemed earnings made under the FHSSS will be taxed at your marginal tax rate less a 30% tax offset. For example, if your marginal tax rate is 34.5% including the Medicare Levy, with the 30% tax offset you will pay a tax rate of 4.5% upon withdrawal.
What is the time limit to use the FHSSS funds?
If you don’t purchase a home within 12 months of receiving the FHSSS amount you can either:
- Apply for a 12-month extension from the ATO.
- Recontribute the amount to your nominated super account as a non-concessional contribution to boost your retirement savings.
- Keep the released amount and be subject to FHSSS tax of 20% to the ATO to counter any benefits from saving through your super.
Can I use the FHSSS funds to buy a property with someone else?
Yes. FHSSS is assessed based on individuals so your money under FHSSS can go towards a house that is also purchased by a person who has previously owned a home.