Saving for a home for first home buyers
About the author:
- Author name:
- By Terri Bradford
- Job title:
- Head of Wealth Management
- Date posted:
- 29 March 2022, 4:55 PM
The First Home Super Saver Scheme ('FHSSS') is intended to assist first home buyers to enter the housing market by allowing them to build a deposit on a home via their superannuation.
How it works
Individuals planning to buy a first home can make voluntary contributions of up to $15,000 per year and up to a total of $30,000 across all years under the First Home Super Saver Scheme. From 1 July 2022, this total amount will increase to $50,000. The amount of eligible contributions that can count towards your FHSS maximum releasable amount for each financial year will remain at $15,000.
Contributions and deemed earnings, net of tax, can be withdrawn after the end of the financial year in which contributions have been made. Withdrawals made via voluntary concessional contributions will be taxed at marginal rates less a 30% tax offset. Contributions can be made by way of salary sacrifice arrangements with the employer. Self-employed, or employees whose employers do not offer salary sacrifice, can claim a tax deduction on personal contributions. This scheme is therefore more tax effective than the previous First Home Owners Grant.
Voluntary contributions under this scheme must be made within the superannuation caps. The total concessional contributions an individual can make, from both compulsory employer contributions and voluntary contributions, including those made under the scheme, cannot exceed $27,500 per annum as per current concessional contribution limits.
The amount of earnings that can be released will be calculated using a deemed rate of return equal to the shortfall interest charge at the time (3.04% annualised for quarter January – March 2022). This represents an attractive earnings rate on funds contributed under the scheme compared to bank interest rates.
A withdrawal from super for the purpose of a first home deposit is a withdrawal of capital and as such will not trigger a reduction in social security entitlements.
While the concessional part will be included in taxable income it will not flow through to other income tests, such as HECS/HELP repayments, family tax benefit or child care benefit.
The First Home Super Saver Scheme is administered by the ATO, which will determine the amount of contributions that can be released and instruct superannuation funds to make these payments accordingly.
Important things to know
The ATO have compiled the following list of important things you need to know if you plan to use the FHSS scheme:
- You must apply for and receive an FHSS determination from us before signing a contract for your first home or applying for release of your FHSS amounts.
- You need to make sure you correctly enter each of your eligible contributions into the FHSS determination form, do not total the contributions.
- Superannuation guarantee contributions made by your employer, and spouse contributions cannot be released under the FHSS scheme.
- If you make an error in your FHSS determination you can correct this by requesting another determination, provided you have not signed a contract or requested a release.
- If you provide incorrect information in your FHSS determination and later request a release based on that incorrect information, it is likely that your request will be cancelled and any FHSS money will be returned to your super fund.
- You can only request a release under the FHSS scheme once. If your release request is cancelled, you will not be able to apply again in the future.
- You should request the release of your FHSS amounts around the same time you start your home buying activities – for example, when you apply for a home loan.
- The home you purchase or construct must be located in Australia.
- If you've already received a determination and signed your contract to purchase or construct your home, you must make a valid release request within 14 days of entering into that contract.
- You can also sign your contract after you make a valid release request. You have 12 months from the date you make a valid release request to notify us if you have signed a contract to purchase or construct your home, or recontributed the required amount to your super fund (see information below)
- After you have requested the release, it may take between 15 and 25 business days for you to receive your money.
Young couples who are both eligible for the scheme have the opportunity to combine savings to facilitate a higher deposit. This means a total of up to $60,000 combined could be saved, or up to $100,000 from 1 July 2022.
Non-concessional contributions made from post-tax income can also be made under the scheme. While the contributions will not benefit from any tax concession for the individual apart from the concessional tax rate on funds held within super, the non-concessional amount when withdrawn will not attract tax.
Where both concessional and non-concessional contributions are made by an individual at the same time or in the same year, in relation to the FHSSS, the non-concessional contributions will be deemed to have been made first at the time a release request is made. This ensures the amount that can be released under the scheme can be maximised, up to the allowable limits.
What if the individual changes their mind or does not purchase a home?
If an individual does not enter into a contract to purchase a home or construct a new home within 12 months from the date they make a valid release request, or does not genuinely intend to occupy the home, they must recontribute a non-concessional contribution amount into super (it must be made as an NCC and not a concessional contribution so that no further tax benefit is derived). The ATO Commissioner must be notified that the contribution has taken place.
The total amount of the recontributed amount must be at least equal to the assessable FHSS released amount less any amounts that were withheld by the Commissioner. This ensures that the individual does not receive a benefit from the concessions provided by the FHSSS where they did not ultimately acquire their first home.
The legislation bases the amount that needs to be recontributed on the individual’s assessable FHSS released amount as appropriate because it is this amount that determined the original tax offset
If the individual does not recontribute an amount into super tax will be imposed at 20% of the assessable FHSS released amounts.
Applying FHSS tax to an individual who has not acquired their first home or recontributed an amount into superannuation ensures that such individuals do not obtain a benefit from accessing the FHSS Scheme.
Find out more
If you would like to review your own situation in relation to the First Home Super Savers Scheme please speak to your Morgans adviser or contact your local Morgans office.
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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.