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Saving the deposit to buy your first home has always been a tall order, but with house prices at record highs and cost-of-living pressures continuing to rise, getting into the housing market has become even more of a challenge.
The First Home Super Saver Scheme (FHSSS) developed by the Australian Government could be part of the solution for some first home buyers, but it’s definitely not for everyone as the rules are quite strict and there are limits on the amount you can withdraw.
The scheme allows you to save money towards your first home within your super account, where it gets to grow in a lower tax environment. Your super contributions for the FHSSS can be either voluntary concessional (before-tax) and voluntary non-concessional (after-tax) contributions.
10 key facts about the FHSSS
To help you get your head around the FHSSS Scheme and whether it’s for you, we’ve prepared this handy 10-point guide:
1. There are limits on how much you can release (or withdraw)
From 1 July 2022, the maximum amount you can withdraw from the FHSSS is $50,000 in eligible super contributions, plus their associated earnings. The individual-based limits give couples the chance to save up to $100,000 using the FHSSS.
Until 20 June 2022, the maximum release amount was $30,000.
Your maximum FHSSS release amount is the sum of your eligible contributions and associated earnings. It includes 100% of your eligible non-concessional (after-tax) contributions, 85% of your eligible concessional (before-tax) contributions and your deemed associated earnings (see Point 6).
2. There are limits on eligibility
To be eligible for the FHSSS, you must have never:
- Previously owned a home in Australia (including an investment property, vacant land, lease of land or commercial property)
- Previously requested the ATO to issue an FHSSS release authority.
- Although you can make eligible contribution before you are aged 18, you must be at least 18 years of age to apply for the release of your contributions under the FHSSS rules.
The scheme also imposes several obligations on FHSSS savers. You must be a first home buyer and intend to live in the property you purchase, or intend to as soon as practicable after buying. Purchasers are also obligated to live in the property for at least six months within the first 12 months you own it, after it’s practical to move in.
You are also required to apply for and receive an FHSSS determination from the ATO before signing a purchase contract or applying to release your FHSSS amounts from your super account.
3. Each person has an annual contribution limit
Rules and limits for the FHSSS 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.
From 1 July 2022, each financial year you are limited to counting $15,000 in eligible super contributions towards your FHSSS releasable amount.
Your total super contributions – including contributions made under the FHSSS – must still be within the normal annual caps for both concessional and non-concessional super contributions. For 2022–23 the annual general contributions caps are:
- Concessional (before-tax) contributions cap: $27,500
- Non-concessional (after-tax) contributions cap: $110,000. (Your personal cap may be different depending on how much you already have in the super system.)
All contributions counted towards the FHSSS must be voluntary contributions, so Super Guarantee (SG) amounts paid into your super account by your employer cannot be directed towards your FHSSS savings. Spouse contributions are also ineligible and can’t be released under the FHSSS.
4. Your concessional contributions will be taxed
Under the FHSSS rules, you can make both concessional contributions and non-concessional contributions into your super account to release when you purchase your first home.
If your FHSSS contributions are made using a salary-sacrifice arrangement – or if you intend to claim them as tax deduction – the contributions are considered to be made from your before-tax income. This means your super fund will levy a 15% contributions tax on your contribution when it goes into your super account.
This 15% tax rate on your concessional contributions may be lower than the normal marginal tax rate you pay on your income if you are a high-income earner. If you are a lower income earner on a lower tax rate, you need to weigh up whether saving for your home deposit using the super system would be beneficial for you.
5. Tax is payable on the way out too
Like most super savings (unless you retire on or after the age of 60), there’s a tax bill to pay when you withdraw your money from your super account using the FHSSS rules.
The assessable FHSSS amount is subject to withholding tax at your marginal tax rate, less a 30% tax offset. This assessable FHSSS amount is made up of your concessional contributions and the associated earnings on both your concessional and non-concessional contributions.
Both the assessable FHSSS 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 FHSSS. This may not be the same financial year in which you receive your FHSSS money.
6. Investment returns are deemed by the ATO
The associated earnings on your FHSSS savings are deemed using a formula calculated by the ATO, not on the actual investment earnings on your super contributions. These associated earnings are part of the calculation used by the ATO to work out how much you can withdraw under the FHSSS ($50,000 limit from 1 July 2022).
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 FHSSS and the associated earnings. It then advises your super fund on the amount that can be released when you apply to withdraw your FHSSS savings for your home deposit.
You must apply for and receive an FHSSS determination from the ATO before you sign the contract for your first home or apply for release of your FHSSS amounts. You have 12 months from the date you make a valid release request to sign a contract to purchase or contract your home.
If you don’t sign a contract to purchase or construct a home within 12 months, the ATO will automatically grant you a 12 month extension. You can also recontribute your savings into your super account or retain it and pay tax on the money (see Point 8).
8. The tax man will be watching
The ATO is responsible for ensuring any money withdrawn from your super account under the FHSSS rules is used to buy a home.
If you release your FHSSS money and don’t buy a home, you can choose to either recontribute it into your super account as a non-concessional contribution (less any tax withheld), or to keep the released amount and pay a flat 20% FHSSS tax on the assessable released amount.
There are also notification requirements with the FHSSS. If you don’t notify the ATO you have signed a contract to purchase or construct a home within 28 days of signing the contract, a 20% FHSSS tax is payable.
You must also notify the ATO within 12 months of the date you requested release of your FHSSS money if you choose to recontribute your assessable FHSSS amount (less tax withheld) into your super fund. If you don’t, you may be subject to the 20% FHSSS tax.
9. You can buy a property with someone else
You can still access your FHSSS 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 FHSSS is assessed on an individual basis. This means couples, siblings or friends can each access their own eligible FHSSS 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 FHSSS release amount is not included in your assessable income for calculating family assistance and child support payments.
When you withdraw an assessable FHSSS 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.