First Home Saver Scheme – Are you (or your kids) maximising?

The first home saver scheme (FHSS) has now been accessible for 3 years, but still is an under-utilised tool in assisting you to save for your – or your kids – first home. Below is a recap on this scheme, and why it may want to be considered as part of either your own savings plan, or if you are a parent looking to assist your children with their first home purchase.

How does the FHSS work?

If you’re aged 18 or over and are an eligible first home buyer, you can withdraw voluntary super contributions made since 1 July 2017 to put towards the purchase of your first home. Under the current rules, these voluntary contributions are up to $15k per financial year, with a total maximum of $30,000. This applies to each individual buying the home, so if buying with a spouse, friend or sibling, you have access to your own FHSS, meaning you could access up to $60,000.

The legislation has now passed to increase the total maximum from $30,000 to $50,000 from 1 July 2022.

Although you need to be 18 to withdraw the funds, contributions can happen prior to this age.

 

What counts as a voluntary super contribution?

Super contributions that can be withdrawn are salary sacrifice contributions and personal contributions (concessional or non-concessional). Your compulsory super contributions and spouse contributions cannot be withdrawn as part of the FHSS.

 

How is this beneficial?

As superannuation is usually a more favourable tax environment compared to an individual tax payers own marginal tax rate, the intention is that a first home buyer will be able to grow a deposit quicker and also reduce the tax they pay (and therefore save the difference).

Investment earnings are deemed using a formula from the ATO, which is the 90 day bank bill rate plus 3%. This is generally more than you can earning from the average bank account interest.

When money is withdrawn from the FHSS, amounts that were contributed as tax deductible contributions are taxed at your marginal rate less a 30% tax offset, as will associated earnings. After tax contributions will attract no tax.

 

How do I get my savings out of my fund?

You must request a determination from the ATO via your MyGov account prior to signing a contract to buy your first home. This will then tell you how much you can withdraw under the scheme. You can then make a withdrawal request.

Based on above, the ATO advises requesting the release as soon as you start to seriously look for a home – ie when you apply for a home loan pre-approval

The FHSS maximum release amount is the sum of your eligible contributions, taking into account the yearly and total limits, and associated earnings. This amount includes:

  • 100% of eligible non-concessional contributions
  • 85% of eligible concessional contributions
  • associated earnings calculated on these contributions using a deemed rate of return – this is based on the 90-day Bank Bill rate plus three percentage points (shortfall interest charge rate).

The FHSS maximum release amount takes into account the $15,000 limit from any one year and $30,000 total limit (The legislation has now passed to increase the total maximum from $30,000 to $50,000 from 1 July 2022) to the total contributions across all years when calculating the eligible contributions, before adding the associated earnings.

 

What other fine print is there?

You will need to purchase within 12 months of requesting the withdrawal. If you withdraw and then do not purchase a home, you must put back into super as a after tax contribution to avoid penalties.

You will need to live in the property for at least 6 months in the first 12 month period the property can be occupied.

Further information can be found directly on the ATO site.

As always, the above information is general in nature only and does not consider your personal circumstances. If you want to know how to apply this to your own personal situation, please book with one of our advisers here.