The First Home Super Saver Scheme was originally introduced in 2017, updated in 2019 and then extended further in the 2021 Federal Government Budget.
The Scheme is designed to assist first home buyers to build a deposit for a home by taking advantage of the tax concessions available to monies held in superannuation.
Why the First Home Super Saver Scheme was Introduced
The First Home Super Saver Scheme was introduced during the property boom when first home buyers were finding it difficult to get into the market due to rapidly increasing prices, a situation that has continued in 2021 despite the impact of COVID-19
The intent the Scheme is to help first home buyers build a deposit faster within superannuation as compared to traditional forms of saving.
Who can participate in the First Home Buyers Super Saver Scheme?
The Scheme is aimed at those over 18 years of age who have never owned property (home, land, investment property, commercial property) in Australia. And those who have never previously participated in the scheme.
If there are two or more parties, (couples, siblings or friends) intending to buy the home, each can participate in the Scheme.
You need to live in the property you are buying or do so as soon as practical and live in the property for at least 6 months within the first 12 months of ownership.
How the First Home Super Saver Scheme helps you save
The benefit for savers, is that contributions to superannuation are taxed at 15% when received by the Superannuation Company, not your marginal rate.
Added to this, earnings from the investments in superannuation are also taxed at a maximum concessional rate of 15%.
This compares to earnings on investments outside of superannuation that will normally be subject to tax at an individual’s marginal rate.
To get an idea as to how much more you could save via the Scheme use the Government Calculator below:
How Much Can You Contribute to the First Home Buyers Super Saver Scheme?
When deciding how much you will contribute, it is important to:
- Know that from the 1st July 2021 the Total Concessional Voluntary Contributions are capped at $27,500 in any one year (Previously is was $25,000)
- Contributions beyond the cap an excess Concessional Contributions Charge is applied
- Take into account, your current contributions to avoid the Concessional Limit being breached
Given these rules, and the complexity, it is important to seek guidance from your Super Fund and/or Financial Planner.
How Much You Can Withdraw
Currently each participant in the Scheme can withdraw up to $15,000 of voluntary contributions made in any one financial year up to an overall total $30,000 (plus earnings that have accumulated on those funds)
For a couple, if each individually qualified for the Scheme, then their combined withdrawal would be $60,000 plus earnings.
As a result of changes in the 2021 Federal Budget, the total amount individuals can withdraw from the Scheme will be increased to $50,000 from 1st July 2022. This change is retrospective to 1st July 2018.
Withdrawals within the annual and total limits are limited to:
- 100% of non-concessional (after tax) contributions
- 85% of concessional (pre tax) amounts
Eligible Contributions
Eligible contributions to the Scheme include:
- Voluntary Concessional Contributions which can include salary sacrificed amounts – these are contributions for which a tax deduction is claimed – they are usually taxed at 15%
- Voluntary Non-Concessional Contributions which are made from after tax income
Your contributions can’t exceed your current superannuation contribution caps.
From 1 July 2021, the general concessional contributions cap is $27,500 for all individuals regardless of age, lower caps apply for previous years.
Ineligible Contributions
Ineligible contributions under the First Home Super Saver Scheme include:
- Contributions made by an employer
- Spouse contributions
- Contributions made by another party on your behalf
- Contributions to a Defined Benefit Interest or a Constitutionally Protected Fund
Critical Information
Whilst the Scheme offers genuine saving advantages for first home buyers, there are several important criteria you need to know:
- You can only apply to release the funds one time
- You must apply for and receive FHSS approval before signing a contract to buy or build your first home.
- You also need this approval, before applying for release of funds under the scheme
- It can take between 15 and 25 business days after you apply for the monies to be released. You should request release of the funds when you start actively looking for a home or applying for finance
- If you have received a determination and signed a contract for the purchase or construction of a home you must make a request for release of the funds within 14 days
- After you sign a contract to purchase or construct a home, you have 28 days to notify the First Home Super Saver Scheme
- You have 12 months from when the money is released to sign a contract to buy or construct your home
- If you do not sign a contract to buy or construct a home within this timeframe, you can request an extension of time up to a maximum of a further 12 months and/or re-contribute the amount (less tax withheld) back to your Super.
- It is important to note however, if you do re-contribute the funds back to Super you CANNOT apply for their release at a later date!
- If you choose to hold the funds beyond 12 months, a flat tax of 20% will be payable on the amount withdrawn
In the financial year you receive the monies from the Scheme, the amount needs to be included in your Tax Return (There will be a Tax Offset to also include in your return)
Applying for Release of Your Savings
When you are ready to seek release of the funds you have saved and the associated earnings you need to apply for a determination using your online My Gov Account.
Prior to applying, it is important to ensure each contribution is eligible for withdrawal and all the information you have provided is correct.
Seek Professional Advice
Whilst the Scheme offers genuine advantages to first home buyers, given it encompasses both superannuation and tax it is important to:
- Check with your Superannuation Fund to confirm, if you participate in the Scheme, the funds can be released (some funds do not)
- Confirm with your employer they offer salary sacrifice arrangements
- Seek guidance from both your Financial Planner and Accountant
Summary
Saving to accumulate enough money to purchase your first home is always a challenge for most people.
The First Home Super Saver Scheme isn’t a magic bullet and there are strict conditions attached to it – however if you qualify, the tax concessions certainly help.
Doing a budget and working out how much you can afford to save is also an important step to ensure you can take full advantage of the opportunity.
The other critical element of buying a home, is to ensure your finance is truly market competitive and is tailored to your circumstances.
If you would like to understand what you can borrow, and on what terms, don’t hesitate to give me a call.
