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Home / How super works / Super contributions / How does the First Home Super Saver (FHSS) Scheme work?

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

January 14, 2020 by Janine Mace 1 Comment

Reading time: 4 minutes


Important: The caps for concessional and non-concessional contributions will both increase by 10% from 1 July 2021 (for the 2021/22 financial year onwards).

  • The concessional contributions cap will increase from $25,000 to $27,500 per year
  • The non-concessional contributions cap will increase from $100,000 to $110,000 per year

The figures in this article refer to the current contributions caps, applicable for the 2020/21 financial year.


Saving a deposit to buy your first home is a tough task, and purchasing an affordable first home can be an even greater challenge.

The First Home Super Saver (FHSS) Scheme developed by the Australian Government is one solution, but it’s not for everyone.

To help you get your head around whether or not the FHSS Scheme is for you, check out SuperGuide’s 10-point guide.


Background

The FHSS Scheme was launched in the May 2017 Federal Budget and is designed to allow first homebuyers to use their super account to save some of the money they need for a home deposit.

Eligible contributions into the scheme count from 1 July 2017, with withdrawals permitted from 1 July 2018.

On 1 July 2019, the government updated the law to confirm the FHSS Scheme could only be used for Australian based property. It also confirmed individuals were permitted to sign a property contract up to 14 days prior to requesting release of their FHSS savings. This is designed to make it easier for people to use the scheme when time is short, for example, when signing a contract at auction.


10 key facts about the FHSS Scheme

1. There are limits on how much you can save

The maximum amount per person you can contribute to super using the FHSS Scheme is $30,000.

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.

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Good to know

You can make FHSS contributions using a salary sacrifice arrangement with your employer, or you can make tax-deductible super contributions. Alternatively, you can make non-concessional (after-tax) contributions.


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.


Good to know

Non-concessional (after-tax) contributions in the FHSS Scheme are not reduced by the 15% contributions tax because those super contributions are from your after-tax money.


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.

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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.


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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.


Need to know

If you change your mind and decide not to buy a first home, your savings under the FHSS will stay locked up in the super system until you retire.


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.


Need to know

The FHSS Scheme can only be used to buy your first home if it is located in Australia.


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.


Need to know

Amounts withdrawn from the FHSS Scheme will be used, however, to pay outstanding debts to the Commonwealth Government such as income tax, activity statement, Centrelink and Child Support Agency debts.

If you have an income tax debt which includes a compulsory repayment of part of your study loan, some of your released FHSS amount will be used to pay this compulsory repayment as it forms part of your income tax debt.


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Learn more about how the home affects retirement in the following SuperGuide articles:

Home ownership and super are far more entwined than you might think

December 11, 2020

Reverse mortgages: What are they and how do they work?

December 2, 2020

Video: Home equity release for retirees

December 1, 2020

Your home: The foundation of retirement planning

November 24, 2020

What matters is the home: Review finds most retirees well off, some very badly off

November 23, 2020

What is the Pension Loans Scheme, and how does it work?

September 2, 2020

Saving for retirement outside super

February 5, 2020

Location the missing ingredient in retirement planning

February 1, 2020

Making downsizer super contributions: 10 things you need to know

December 16, 2019

Learn more about super contributions strategies in the following SuperGuide articles:

Capital gains and super: Using super contributions to reduce your CGT bill

March 10, 2021

What super contributions are best for me?

July 8, 2020

What is a re-contribution strategy and how can I use it with my super?

July 6, 2020

A super guide to understanding the bring-forward rule

July 1, 2020

How carry-forward (catch-up) super contributions work

July 1, 2020

Contribution splitting: How to boost your spouse’s super

July 1, 2020

How a government co-contribution can help boost your super savings

June 19, 2020

Why it can be a good idea to put as much into super as possible

June 1, 2020

Salary sacrifice and super: How does it work?

January 13, 2020

Making downsizer super contributions: 10 things you need to know

December 16, 2019

The pros and cons of investing your inheritance into super

August 13, 2019

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IMPORTANT: All information on SuperGuide is general in nature only and does not take into account your personal objectives, financial situation or needs. You should consider whether any information on SuperGuide is appropriate to you before acting on it. If SuperGuide refers to a financial product you should obtain the relevant product disclosure statement (PDS) or seek personal financial advice before making any investment decisions. Comments provided by readers that may include information relating to tax, superannuation or other rules cannot be relied upon as advice. SuperGuide does not verify the information provided within comments from readers. Learn more

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Reader Interactions

Comments

  1. georgie says

    October 16, 2017 at 12:35 pm

    The one big advantage to the FHSSS and the previous scheme is that it allows income support recipients (students/ single parents/disability pensioners etc) to save money for a home without deeming applying to the account balance. That means that your income support payment will not be reduced by the amount of “deemed interest” .

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Important: Disclaimer

All information on SuperGuide is general in nature only and does not take into account your personal objectives, financial situation or needs.

You should consider whether any information on SuperGuide is appropriate to you before acting on it.

If SuperGuide refers to a financial product you should obtain the relevant product disclosure statement (PDS) or seek personal financial advice before making any investment decisions.

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