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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 is important you are aware of the rules and limits on the amount you can withdraw.
The scheme allows you to save money towards your first home within your super account, where tax concessions and a generous rate of interest can add to your savings. Your super contributions for the FHSSS can be either voluntary concessional (before-tax) and voluntary non-concessional (after-tax) contributions.
To encourage take-up of the scheme, changes are on the way that will make it simpler to access your money when you’re ready to purchase a home (see section What is changing? below).
What you can withdraw
Voluntary contributions you have made since 1 July 2017 to a taxed super fund are eligible to be included in the scheme, even if you didn’t originally intend to use them as savings towards a home. If you’re a member of one of the rare untaxed super funds, you can open an account in another fund to make contributions you would like to withdraw for your first home.
Contributions made by another person (like your spouse, your employer, or the ATO co-contribution) can’t be used, although savings transferred from an overseas super fund* can be.
Each financial year you are limited to counting $15,000 in super contributions towards your FHSSS releasable amount, and the total contributions counted towards the release can’t exceed $50,000.
Until 30 June 2022, only $30,000 in total contributions could be used towards the scheme.
Your maximum FHSSS release amount is the sum of your net 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.
Remember the $50,000 limit applies to the contributions that can be included in your release. The amount you can withdraw could be more than $50,000 after interest is added to your savings.
*Excluding applicable fund earnings and Australian-sourced amounts or returning New Zealand-sourced amounts transferred from KiwiSaver.
Who is eligible
To be eligible for the FHSSS, you must have never owned a home in Australia (including an investment property, vacant land, lease of land or commercial property) and cannot have applied for a release from the scheme in the past.
Although you can make contributions before you are aged 18, you must be at least 18 years of age to apply for the release of your contributions.
You must live in the property you purchase or intend to as soon as practicable after buying. You are also required 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.
If you have owned property in the past, but lost it due to financial hardship, you may be eligible for a hardship exception. It is important to apply to the ATO for this exemption before you start saving to confirm you’re eligible.
You can still access your FHSSS savings even if you are partnered with someone who is not a first homebuyer and you want to buy your new 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.
How your savings are taxed
You can make both concessional contributions and non-concessional contributions into your super account to release when you purchase your first home.
Non-concessional contributions are not taxed because you have already paid income tax.
Concessional contributions are taxed at the rate of 15%*. This tax rate is usually lower than the normal marginal tax rate you pay on your income. If you are a lower income earner, you need to weigh up whether concessional contributions would benefit you, or if it is more appropriate to make non-concessional contributions or save outside super.
When you withdraw your savings, there is further tax to pay. The assessable amount is subject to withholding tax at your marginal tax rate, less a 30% tax offset. This assessable amount is made up of your net concessional contributions and the associated earnings on both your concessional and non-concessional contributions. Non-concessional contributions are released tax free – they do not form part of the assessable amount.
The assessable FHSSS amount needs to be declared in your tax return in the financial year in which you request a release of your savings from the scheme. This may not be the same financial year in which you receive your FHSSS money.
*Individuals with total income plus concessional super contributions above $250,000 in a financial year pay an additional 15% tax on some or all of their concessional contributions, bringing the total contribution tax to 30%. Learn more about Division 293 tax.
With all this tax on the way in and out of super, you may wonder what the benefit of the FHSSS really is. Let’s take a look at the example of Marie.
How your savings grow
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.
The ATO calculates your associated earnings using the 90-day bank bill rate plus 3%, and interest is compounded daily. The 90-day bank bill rate moves around in line with broader interest rate movements. In many cases, the interest added to FHSSS savings is higher than the rate you could obtain for a savings account. For example, the annual rate for October–December 2023 is 7.15%.
How to apply
While you’re saving, you don’t need to do anything or notify anyone that you’re saving towards the FHSSS.
Once you’ve finished saving and are ready to buy a home, log in to myGov and visit the linked ATO service. In the superannuation section you will find the FHSSS.
The first step is to apply for a FHSS determination. This will tell you how much you have available to withdraw, including deemed earnings. Under the current rules, you must apply for and receive your determination from the ATO before you sign the contract for your first home. If you don’t, you won’t be eligible for the scheme and your savings will have to remain in super.
When you’re ready to withdraw your money, you need to use the system again to make a FHSS release request. Currently, you must do this either before signing a contract to buy or construct your home or within 14 days after signing. It can take 15–20 business days after making a request to receive the funds, so keep timing in mind.
If you didn’t already sign a contract before making a release request, you have 12 months from the date of the request to do so. The ATO will generally extend this time limit to 24 months if required. You must notify the ATO that you have signed a contract to purchase or build your home within 28 days of doing so, or FHSS tax at the rate of 20% may apply.
If you don’t sign a contract to purchase or build a home within 12 months (or within 24 months if you were granted an extension), you can recontribute the amount that was released into your super account or choose to keep it and pay 20% FHSS tax. If you recontribute the amount to super, you must notify the ATO before your purchase deadline expires to avoid the tax.
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.
Amounts you withdraw from the FHSSS can however be used to pay any outstanding debts to the government, including income tax, Centrelink and Child Support Agency amounts. Payment of your FHSSS amount could be reduced to nil if you have outstanding government debts that exceed the value of your release.
If you have an income tax debt that 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.
What is changing?
From 20 September 2024, the FHSSS will be more user-friendly.
Under the current process there is no way to correct errors in your application or withdraw it once it has been submitted – so if you make a mistake and apply for a lower amount to be released than you intended (e.g. $2,000 instead of $20,000 – a simple typo to make), the rest of your savings are trapped inside super.
Currently, the time limits around signing a contract to buy a home under the scheme are short, so it is easy to find that you have missed them.
The government has recognised that processes for the FHSSS are restrictive and have led in the past to people receiving less than they intended or missing out on withdrawing savings altogether. To address this, the following changes apply to FHSS determinations from 20 September 2024.
- You can change or withdraw your FHSS release application if the funds have not yet been paid to you. If you withdraw your application, you can reapply later.
- If an amount has been paid by your super fund to the ATO, but not yet released to you, and you decide to change or withdraw your application, the ATO will return the money to your fund. It will be reinvested with the same tax proportions and will not count towards any contribution limit – as if the withdrawal never occurred.
- You may apply for an FHSS determination after signing a contract to buy your first home, as long as the contract has not settled.
- The time limit to apply for a FHSS release after signing a contract to buy your first home will increase to 90 days (from 14 days).
There’s some good news for people who have missed out on making a withdrawal in the past too.
If you bought a home after receiving an FHSS determination but had your application for a withdrawal rejected due to missing the application deadline after signing your purchase contract, transitional rules mean you can reapply for the release of your savings after 20 September 2024.
The amount that can be released is limited to what was available at the time of your original determination. These transitional arrangements will be available for three years and only apply if you have never received a payment from the scheme.
If you’re saving for a first home, it’s worth considering the FHSSS to boost your deposit with tax savings and a generous interest rate. But keep your eyes open for administrative catches – including time limits, eligibility rules and ATO notification requirements – to avoid trapping your savings in super or paying FHSS tax.