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

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

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

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.

To help you get your head around whether the FHSS Scheme is for you, SuperGuide has prepared this handy 10-point guide.

10 key facts about the FHSS Scheme

1. There are limits on how much you can withdraw

The maximum amount you can withdraw from the FHSS Scheme is currently $30,000 per person.

Need to know: In the May 2021 Federal Budget, the government announced it would increase the maximum amount you can apply to withdraw (the releasable amount) from the FHSS Scheme to $50,000. Voluntary super contributions made from 1 July 2017 can count towards your total amount released.

This change is proposed to start from 1 July 2022, but is not yet law.

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 2021-22 the annual contributions caps are:

Concessional (before-tax) contributions cap: $27,500
Non-concessional (after-tax) contributions cap: $110,000

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.

Spouse contributions are also ineligible and can’t be released under the FHSS Scheme.

For more about spouse contributions, read SuperGuide article Contribution splitting: How to boost your spouse’s super.

Your maximum FHSS Scheme release amount (considering the yearly and total limits – currently $30,000) is the sum of your eligible contributions and associated earnings. It includes 100% of eligible non-concessional contributions, 85% of eligible concessional contributions and your deemed associated earnings.

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, lease of 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 maximum a person can contribute each year under the FHSS Scheme is $15,000, with the maximum amount a person can withdraw under the FHSS Scheme currently being $30,000.

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

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

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

If your FHSS contributions are made using a salary sacrifice arrangement or as a contribution for which you claim a tax deduction, your 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.

For many people, this 15% tax rate on your concessional (before-tax) contributions is lower than the normal marginal tax rate paid on your taxable income. Australians earning lower incomes and paying the lowest tax rates, however, need to think carefully about whether saving for your home deposit using the super system 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 part of the calculation used by the ATO to work out how much you can withdraw under the FHSS Scheme (currently limited to $30,000).

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 FHSS Scheme savings for your home deposit.

You must apply for and receive an FHSS determination from the ATO before you sign the contract for your first home or apply 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 also 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 to the ATO for an extension of this time limit.)

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 on the assessable FHSS released amount.

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

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. It cannot be a premises that is not capable of being occupied as a residence, a houseboat, a motor home or vacant land (other than if you have a contract to build your home on it).

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 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.