How does the First Home Super Saver (FHSS) Scheme work?

Your total super contributions – including contributions made under the FHSS Scheme – must be within the normal annual limits or caps for concessional (before tax) or non-concessional (after-tax) super contributions. For 2019/20 and 2020/21 the annual contributions caps are:

• Concessional (before tax) contributions cap: $25,000
• Non-concessional (after-tax) contributions cap: $100,000

All contributions counted towards the FHSS Scheme must be voluntary contributions, so Superannuation Guarantee (SG) amounts paid by your employer cannot be directed towards your FHSS savings.

2. There are limits on eligibility

Eligibility for the FHSS Scheme requires you to:

• Have never previously owned a home in Australia (including an investment property, vacant land and commercial property)
• Have not previously requested the ATO to issue a FHSS release authority
• Be at least 18 years of age to apply for the release of your super contributions under the FHSS Scheme.

The scheme also imposes several obligations on FHSS savers. You must intend to live in the property you purchase as soon as practicable after buying. Purchasers are also obligated to live in the property for at least six of the first 12 months after purchase.

3. Each person has an annual contribution limit

Rules and limits for the FHSS Scheme apply to an individual, which means both members of a couple planning to buy their first home are eligible to use the scheme to save for a home deposit.

The individual-based limits give couples the chance to save up to $60,000 using the scheme.

The maximum a person can contribute each year under the FHSS Scheme is $15,000, with the maximum a person can save in total under the FHSS Scheme being $30,000.

4. Your concessional (before-tax) contributions will be taxed

Under the FHSS Scheme, you can make either before-tax contributions or after-tax contributions to your super account.

If FHSS contributions are made using a salary sacrifice arrangement or as tax-deductible super contributions, the contribution is made from before-tax earnings, which means the super fund will levy a 15% contributions tax on your super contribution.

For many people, this 15% tax rate on their concessional (before-tax) super contributions will be lower than the normal marginal tax rate they pay on their taxable income. Australians earning lower incomes and paying the lowest tax rates, however, need to think carefully about whether or not saving for a home deposit using super is the right path to follow.

5. Tax is payable on the way out too

Like most super savings (unless you retire on or after the age of 60), there is a tax bill to pay when you withdraw your savings from the FHSS Scheme.

The ‘assessable FHSS amount’ is subject to withholding tax at your marginal tax rate, less a 30% tax offset. This ‘assessable FHSS amount’ is made up of your concessional (before-tax) contributions and the associated earnings on both your concessional and non-concessional (after-tax) contributions.

Both the assessable FHSS amount and the withholding tax need to be declared in your tax return in the financial year in which you request a release of your savings from the FHSS Scheme. This may not be the same financial year in which you receive your FHSS money.

6. Investment returns are deemed by the ATO

The associated earnings on your FHSS savings are deemed using a formula calculated by the ATO, not on the actual investment earnings on your super contributions. These associated earnings are used to work out how much you can withdraw under the FHSS Scheme and do not relate to the actual investment return earned by the super fund on your contributions.

Under the scheme rules, the ATO calculates your associated earnings using the 90-day bank bill rate plus 3%. The 90-day bank bill rate moves around in line with trends in investment markets.

7. Your super fund is not in charge

The ATO – not your super fund – decides what super contributions count towards the FHSS Scheme and the associated earnings. It then advises your super fund on the amount that can be released when you submit an application to withdraw your deposit savings.

You must apply for and receive an FHSS determination from the ATO before signing a contract for your first home or applying for release of your FHSS amounts. You have 12 months from the date you make a valid release request to sign a contract to purchase or contract your home. You can also apply for an additional 12 months (maximum 24 months) to purchase or recontribute your savings into your super account (see below).

8. The tax man will be watching

The ATO is in charge of ensuring any money withdrawn from your super account under the FHSS Scheme is used to buy a home.

When you release the money from your super account, you have 12 months to either purchase a property or recontribute your assessable released FHSS amount into your super account. (You can also apply for a 12 month extension, giving you a maximum of 24 months.)

If you release the money and do not buy a home, you must recontribute it into your super account or pay a 20% FHSS tax.

If you do not notify the ATO you have signed a contract to purchase or construct a home within 28 days of signing the contract, the 20% FHSS tax is also payable. You must also notify the ATO within 12 months of the date you requested release of your FHSS money if you recontributed your assessable released FHSS amount (less tax withheld) into your super fund, or you may be subject to the 20% FHSS tax.

For more information about recontributing your FHSS amount into your super account, see the ATO website here.

9. You can buy a property with someone else

You can still access your FHSS savings even if you marry someone who is not a first homebuyer and you want to buy your new family home in both names.

Eligibility for the FHSS Scheme is assessed on an individual basis. This means couples, siblings or friends can each access their own eligible FHSS contributions to purchase the same property. If any of you have previously owned a home, it doesn’t stop anyone else who is eligible from applying.

10. Withdrawals won’t reduce your social security entitlements

Although your concessional contributions and the associated earnings on your concessional and non-concessional contributions are included in your total taxable income, the ATO doesn’t include it in the income test when calculating common social security entitlements. Withdrawal of an assessable FHSS release amount is not included in your assessable income for calculating family assistance and child support payments.

When you withdraw an assessable FHSS release amount, it’s not used in the repayment income calculation for repayment of study and training support loans (such as the Higher Education Loan Program) in the year you request the withdrawal.