The low down on the FHSSS
Have you heard of the First Home Super Saver Scheme (FHSSS)?
You really should have by now, as from 1 July 2018, first home buyers can access funds to purchase homes. Confused? Let us give you the low down…
What is the FHSSS?
At the end of 2017, the Federal Government introduced a scheme to help Australians that are struggling to gain access to the property market – as the rising costs of property around the country is making housing affordability for first home buyers an increasingly large issue. Under the scheme, a first home buyer can make eligible voluntary contributions into their superannuation account which can be used to purchase property. The reason behind this is that deposits into superannuation accounts are taxed at a lower rate and the opportunity to save a large amount quickly becomes more apparent.
To be eligible for the FHSSS you must:
- Be over 18 years of age
- Have never owned property before (including investment, commercial properties, and land)
- Have not requested the release of funds in relation to the FHSSS previously
- Not be purchasing vacant land or any property that’s uncapable of being occupied as a residence (including houseboats and motorhomes).
Are there restrictions?
Yes, there are some limitations in place with the FHSSS. Firstly, contributions are capped at $15,000 per year, and the total amount buyers are able to withdraw is no more than $30,000 per person. This means couples purchasing their first home together can withdraw up to $60,000 to go towards their deposit. Secondly, only contributions into superannuation since 1 July 2017 are classified as eligible to withdraw as a part of the FHSSS – any prior contributions don’t count. Thirdly, the only valid superannuation amounts are voluntary before or after-tax contributions by the individual, so government, employer, spousal or parental contributions are not eligible.
Why use it?
Before-tax deposits into a superannuation account are generally taxed at a rate of 15% – as opposed to income out of superannuation which can be taxed at a rate of up to 45% (not including the Medicare levy). If you begin making before-tax contributions through to super they will be taxed at your marginal rate, minus a 30% tax offset. This saving on tax to put towards a deposit is the highlighted feature of the FHSSS.
Ready to use it?
When you’re ready to purchase your first home, you can apply to the Australian Taxation Office (ATO) to release the funds to you. This amount is the voluntary contributions plus any earnings on that amount minus any tax that will apply.
If you withdraw the money but don’t purchase a new home within 12 months, the funds can either be re-deposited into your super account or you can keep the money and be charged at a flat tax rate of 20%. Alternatively, you can submit an application to the ATO for a further 12 month extension if you still want to use the funds for a first home purchase.
For any more information on the FHSSS head to the ATO website here
Or have a look at their handy calculator which will determine how much you can save
This article is general in nature and does not constitute specific advice regarding your personal circumstances. Before you decide to use the FHSSS or make any major financial decision, we encourage you to speak to a financial adviser.