Saving for a deposit to buy your very first home can be a mammoth task, nearly as challenging as finding an affordable home. In order to help young Australians get into the property market, the federal government introduced the First Home Super Saver Scheme (FHSSS).
What is it?
Essentially a savings scheme utilising your super, where you add personal money into your superannuation account and apply to the ATO to release these funds for the purposes of buying a home. You can make either concessional (before-tax) or non-concessional (after-tax) contributions under the FHSSS.
The maximum to contribute each year under the FHSSS is $15,000, and the maximum a person can save is $30,000.
Am I eligible?
To be eligible for the FHSSS, you must:
- be a first home buyer
- be at least 18 years of age to release the monies
- intend to live in the property you purchase as soon as practicable after buying
- purchase a home within 12 months of the monies being released to you
After you apply through the Australian Tax Office (ATO), the ATO will consider your eligibility and determine how much you can withdraw, not your super fund.
Can I do this today?
If you’ve just read this and quickly calculated the investment returns in your bank versus your super fund and you’re currently running down to your bank to withdraw your life savings, hold on! There’s a few very important things you need to know.
Yes, you can put in up to $15,000 a year, but remember the FHSSS contributions are included within the ordinary annual contribution caps. For the 2018/2019 financial year, the annual contributions caps are:
- Concessional (before tax) contributions cap: $25,000
- Non-concessional (after-tax) contributions cap: $100,000
Concessional caps include the 9.5% Superannuation Guarantee (SG) your employer puts into your super account. So, if you’re planning on making additional concessional contributions you need to work out how much super your employer has already contributed.
For example, if you receive $15,000 a year SG, you can only put in an additional $10,000 in FHSSS within that financial year to remain within the cap.
What earnings will I see?
The earnings on your FHSSS savings will be deemed, using a formula calculated by the ATO. Under the scheme rules, the ATO will deem that your contributions have earned a return based on the rate earned by 90-day bank bills plus 3% (shortfall interest charge rates).
It sounds complicated, but simply put, the earnings are not the same as your super fund. In the January to March 2019 quarter the return you’ll see is 4.94%, which could be very different from what your super fund might return.
Will I have to pay tax?
There is nothing surer in life than death and taxes so the answer to your question is sadly yes.
Releasing your contributions and deemed earnings made under the FHSSS, you will be taxed at your marginal tax rate minus a 30% tax offset. If your marginal tax rate cannot be established, the tax on withdrawal is 17%.
Where can I find more information?
There are many pros and cons of accessing the FHSSS so you need to carefully consider whether it’s right for you. To better understand the scheme before taking the plunge, visit the ATO’s website for more information or speak to a financial adviser.