Are you looking to buy your first home? Do you find it hard to save the 20% deposit you need? The Australian Governments First Home Super Saver Scheme (FHSS) may be just what you’re looking for to help save that all important deposit on your first home.
The FHSS was first developed by the Australian Government in the Federal Budget 2017-2018 to help Australian’s afford housing. The FHSS allows first home buyers to save money for their first home using their superannuation fund. With the concessional tax treatment that super funds are eligible for, it helps buyers to take advantage on tax and save faster.
Pro Tax Tip: Changes were made to the FHSS in 2019 that affect FHSS release requests and contracts entered on or after 1 July 2018.
On April 5 2019, Treasury Law Amendments changed the FHSS in the following ways:
- The FHSS scheme can be applied to buy your first home in Australia only
- People applying for the FHSS must receive determination for approval before signing a contract
- You can sign a contract to purchase or construct your home either from the date you make a valid request to release your FHSS amounts or up to 14 days before you make a valid request to release your FHSS amounts. You’ll no longer have to wait until the first FHSS amount is released to you to sign a contract to purchase or construct your home
- You have 12 months from the date you make a valid release request to sign a contract and notify the ATO within 28 days of signing and recontribute the assessable FHSS amount (less tax withheld) into your super and notify the ATO within 12 month of the valid release date
What Is The FHSS Scheme?
The FHSS scheme allows savers to set aside money using their super accounts and make voluntary concessional (before tax) and voluntary non-concessional (after tax) contributions. This allows you to take advantage of saving on tax. When you need the fund, you apply to release the money to help you purchase your own home.
How Do You Qualify?
To be eligible to receive the FHSS Scheme, there are certain criteria you’ll need to meet:
- You have to be a first home buyer
- You either need to live in the premises you are buying, or intend to as soon as practicable, and
- You intend to live in the property for at least 6 months within the first 12 months that you own it
How Much $$$ Can You Redraw?
When saving for a deposit for your first home, anything helps. You’ll be able to apply to have a maximum of $15,000 of your eligible voluntary contribution released within one financial year. A total of $30,000 contributions is capped across all years.
Who Can Start Saving?
Anyone can make voluntary payments into their super account and take advantage of the tax savings, however to save using the FHSS scheme, you must be 18 or older and request a determination or a release of amounts under the FHSS scheme.
Pro Tax Tip: Concessional contributions are taxed at 15%, which for most people is lower than their marginal tax rate. You benefit because you’ll pay less tax while you boost your savings. Generally speaking, you’ll benefit if you earn over $37,000 per year. Contributions are capped at $25,000 per year.
There are a couple more rules:
- This must be your first property. This includes an investment property, vacant land, commercial property, or lease of land in Australia, or a company title interest in land in Australia
- You must not have requested a FHSS release previously
Pro Tax Tip: You apply for the FHSS individually. Savvy savers who are couples, siblings or friends can each have access to their own FHSS contributions for the same property.
What If I’ve Suffered Hardship?
If you’ve declared bankruptcy, suffered a divorce or separation from a relationship breakdown, lost your employment, have been affected by a natural disaster or been eligible for early access to superannuation, you may still be considered. You’ll need to apply under the financial hardship provision.
Pro Tax Tip: Your ITP Tax Accountant will help you apply. They know exactly how to apply and use the correct channels for a better chance at success. Chat with your ITP Tax Accountant and see how they can help plan or apply for the FHSS scheme. A few minutes on the phone could save you thousands!
How Does It All Work?
There are some finer details you’ll need to be aware of before you start saving. First up, you’ll need the OK from the Australian Taxation Office (ATO). They will tell you how much you’re eligible to withdraw using the FHSS scheme. You’ll also need to apply to the ATO when you want to withdraw an amount.
Pro Tax Tip: Your ITP Tax Accountant can help you every step of the way if this sounds like too much to cope with! They have an open line with the ATO and can pave the way to smooth savings.
You’ll also need to check that your super account accept savings and will allow you to withdraw your savings under the scheme. First home buyer savers will also need to check with their employers and make sure they’ll make extra contributions on your behalf.
You don’t want to incur any extra fees from your super account either. A phone call or email can help clear this up. You may be up for extra fees, charges or insurance implications.
Pro Tax Tip: Your tax will be affected in the year in which you make the request for release. Make sure you declare this amount (assessable and tax-withheld amounts) when you lodge your tax return.
To qualify for the FHSS scheme, the amounts you withdraw need to be over and above your normal super contributions made by your employer, or contributions made by you personally.
How Is The Money Released?
The ATO will advise how much you’ll be able to withdraw under the scheme. You’ll need to apply to them when you’re ready to have the money released. Withdrawals are generally taxed at your marginal rate less a 30 per cent rebate.
The ATO will arrange for your funds to be released to you from your super and will pay it on to you. Tax will be withheld automatically.
What If You Don’t Buy A Home?
If you’ve saved and withdrawn and decided it wasn’t all for you and you didn’t buy a home after your time expires, you can arrange to have the amount released back into your super fund, or pay tax equal to 20 per cent of the concessional amount released. This will remove the tax benefits of the FHSS scheme.
ITP Tax Accountants have been helping Australian individuals and business with their tax and all tax-related matters for 50 years. There’s not a lot they don’t know about tax and how to use various schemes to your advantage. Phone 1800 367 487 and chat with an ITP Tax Accountant today and see how much you might be able to save!