The First Home Super Saver Scheme (FHSSS) allows Australians to save for their first home by making voluntary contributions to their super, offering a tax cut.
Australia’s younger generations are finding it more and more difficult to save enough money for a deposit to enter the property market. House prices continue to rise while wages don’t, making saving extremely hard. In 2017, the Australian Government introduced the First Home Super Saver (FHSS) scheme to help young Australians save for a deposit.
Discover how it works, and if it could be the right option for you.
The FHSS scheme enables people to save money for their first home inside their super fund. With the concessional tax treatments of superannuation, the scheme will help first home buyers save for a deposit faster.
People can boost their superannuation contributions by up to $15,000 a year on top of the regular 9.5% super contribution, also known as Super Guarantee. Contributions to the scheme were enabled in 2017, and are still ongoing today.
Previously, the maximum amount you could withdraw from your super under this scheme was $30,000. However, as of 1 July 2022, you can withdraw up to $50,000 per person. If you made a determination before this date, you will still only be able to withdraw $30,000.
If you and your partner have both saved money under this scheme, you can withdraw up to $100,000.
The First Home Super Saver Scheme allows you to make voluntary contributions to your super before-tax (concessional) or after-tax (non-concessional).
Concessional contributions can be made through salary sacrificing, while non-concessional contributions will usually need to be manually transferred after receiving your pay. Super is a low tax zone, taxed at 15% during your working years, which is the main benefit of this scheme. By contributing to your super, you’re saving on tax, helping you save a deposit faster.
The FHSS offers flexible terms compared to other first home owner grants currently available, with the main difference being that it is available individually. This means couples, family or friends have access to their own FHSS contributions even when purchasing the same property.
Eligibility criteria for individuals are relatively straightforward and are as follows:
You must purchase your first property in Australia within 12 months of applying for an FHSS release request, and you must live in the property for at least 6 of the first 12 months that you own it.
If you have owned property before and wish to apply for the FHSS scheme, you may be granted an exception if you have suffered financial hardship.
Specific conditions also dictate which super contributions are eligible to be withdrawn under the FHSS scheme. These can be found via the ATO website.
The types of contributions that you can make toward the FHSS scheme are as follows:
You can contribute up to your super contributions cap, which is $27,500 for all ages for the current financial year (2022-2023). However, this amount includes compulsory contributions made by your employer. Additionally, even if you contribute more than $15,000 per year to your super, you will only be eligible to withdraw $15,000 per year and $50,000 in total when you apply for a release request.
If you have a KiwiSaver account, this may be eligible to go towards your maximum release amounts.
When you are ready to withdraw the money from your super, you need to apply for an FHSS determination and then a release.
It’s a good idea to check your balance in your super before you do this, which you can do at any time using your myGov account.
You must have an FHSS determination before signing a contract to purchase property, including vacant land purchases. If you have already signed a contract to purchase property, you may not be eligible to request an FHSS determination.
If you have an FHSS determination and have also signed a property contract, you must make your request for release within 14 days of signing the contract. You can make your release request before signing the contract if you wish.
You will be taxed according to the type of contributions that you make.
If you make concessional (before-tax) contributions, you will be taxed at 15% in your super.
If you make non-concessional (after-tax) contributions, no more tax will be applied when these funds go into your super or are released.
When you withdraw concessional contributions under the FHSS scheme, your marginal tax rate applies with a 30% offset. For example, if you would normally be taxed at 34.5% (including Medicare Levy), your super funds release will be taxed at 4.5%.
The FHSSS can be an effective program if used appropriately, but there are some drawbacks to consider as well.
You can apply for an FHSS determination and release through your ATO account online. The process is highly streamlined and only involves a few clicks.
To request a determination:
Once you have applied to FHSS determination, you will be notified of your maximum release amount. Your FHSS determination should be calculated instantly once submitted.
You can request an FHSS determination more than once, but you can only request a release once.
Once the determination step is completed, you should also have access to request an FHSS release from the same section of the ATO website. It’s important to note that if the contract of sale for the property has been signed more than 14 days before your release request, you will be subject to FHSS tax.
Also, be sure to review your request thoroughly before submission. Once you have requested a release, you can’t request another one, even if you have requested an amount below your FHSS maximum release amount.
It will take between 15 and 25 business days for the funds to be released. This amount will be taxed at your expected marginal tax rate, including the Medicare levy, minus a 30% offset.
Jessie has been saving for a house deposit for 5 years using the FHSS scheme. By salary sacrificing $600 from his gross paycheck each fortnight, he has saved $13,260 in voluntary contributions to his super each year.
Over 5 years, he has saved $66,300 within his super. If he had saved that money in his normal bank account, taxed at his regular tax rate of 34.5%, he would have only saved $51,090.
He has now saved enough to afford a 10% deposit for the $600,000 apartment that he has been looking at.
Abigail currently has $50,000 saved up for a house deposit and is looking to buy a property for $500,000. She has enough for a 10% deposit, but she wants to keep saving until she has 20% to avoid LMI.
She can save $2000 a month of her gross income based on her expenses, and she is considering putting this into the FHSS scheme.
If she puts $2000 a month into her super ($1700 after tax), she will be able to save $20,400 by the end of the year. However, she would only be able to withdraw $15,000 and incur tax on this withdrawal. Additionally, she may be unable to make all of these regular contributions because she will have to keep in mind her concessional contribution cap of $27,500, including her employer’s compulsory contributions.
Taxed at her regular rate of 34.5%, $2000 of her gross paycheck would become $1310. If she saved this sum every month, she would save $15,720 by the end of the year.
Although Abigail would be able to save more money under the FHSS scheme, the withdrawal and concessional contribution limits mean that she will have access to more money for her deposit if she doesn’t use the scheme.
This really depends on individual circumstances. The Australian Government estimates that the FHSS scheme can boost a person’s savings by 30% compared to a standard bank account.
However, the limitations on the FHSSS are quite strict, so it’s important to weigh up whether the potential savings are worth the restrictions. Our advice is to always seek professional advice to see whether your financial situation would benefit from the FHSS.
Some suggestions for maximising the benefits of the FHSSS include:
There are several other First Home Buyer Schemes available across Australia, including:
The team at Joust can help you plan your mortgage and create your home loan profile, especially if you have a complex loan.
The Live Auction feature enables lenders to bid for your loan to make sure you get the best possible deal.
You can either enter into a salary-sacrifice arrangement with your employer or make personal contributions.
These personal contributions will be made after tax, but you can claim tax deductions on them if you want to.
If you don’t purchase a home within 12 months after having the funds released, you will either have to contribute the money back to superannuation or pay an extra tax on it. The tax you pay at this point will remove the original tax benefit.
You cannot apply for a release request more than once.
You must include the FHSS release of funds in your assessable income tax return in the year that you request the release. You must also include the amount of tax withheld.
For personal contributions to your super fund made after-tax, you can claim tax deductions. These are then considered concessional contributions.
Non-concessional contributions are contributions for which you don’t claim a tax deduction. These types of contributions have different caps than concessional contributions.
The information in this article is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.