What is it?
The scheme is aimed at helping first home buyers save faster using their ready made superannuation investment vehicle and the concessional tax treatment of super.
How does it work?
From 1 July 2017 the government has allowed you to make voluntary contributions into super at a maximum of $15,000 per year and up to a total of $30,000 across all years as savings for your first home. These contributions count towards your normal contribution cap of $25,000 concessional and $100,000 non concessional.
From 1 July 2018, you can apply to release your contributions made as above plus associated earnings if you meet certain eligibility criteria. The associated earnings are at a deemed rate set at the ‘Shortfall Interest Charge’ which at the time of writing are at 3.98%.
To be eligible for the scheme you must be a first home buyer and have all of the following apply:
- You live in the premises you are buying or intend to as soon as practicable
- You intend to live in the property for at least six months within the first 12 months you own it after it is practical to move in
- You must never have owned property in Australia (unless accepted under financial hardship)
- You must be over the age of 18 when you apply for a release
- The home must be located in Australia
Each person is assessed individually, so a couple or group could each access the scheme to purchase the same property. If anyone else has previously owned a home it does not prevent anyone else who is eligible from applying.
Release of funds under FHSSS
To withdraw your voluntary contributions under the FHSS scheme you will need to request a FHSS determination from the ATO and receive before signing a contract for a home (you can do this through your MyGov Account). This will tell you the maximum amount available to release under the scheme. You do not need to have found a home yet to apply for a release, but will need to buy a home within 12 months (or 24 months by extension). You must make a valid release request within 14 days of signing the purchase contract or otherwise will be subject to FHSS tax. If you need the release amount to make your deposit or settlement, make sure get the ball rolling early for your determination and release as applications may take several weeks, or better yet make the arrangement for the release when you are ready to start looking for a home.
If you do not buy a home within the 12months, you can either contribute it back into super or pay FHSS tax equal to 20 percent of the concessional amount released. Before recontributing of making any further contributions it is important to keep in mind you can only apply for release of FHSS amounts once.
It is important to note while you can claim a tax deduction for the contributions you make to super under this scheme, you will also then generally be taxed at your marginal tax rate less a 30 per cent rebate on withdrawal (for most taxpayers the effective tax on this will be 4.5% to 9%). The ATO will withhold an estimate of the tax that will be owed. You will need to make sure to include the assessable FHSS released amount on your tax return.
There have been some mixed reviews on this scheme, mostly around the administrative burden and timeliness in applying for release amounts. Also, please ensure you talk to your super fund before making any contributions under the scheme to make sure they will release funds under this scheme and to confirm fees, charges or insurance implications that may apply. Otherwise, there is potential for real tax savings and investment earnings under the scheme if you have the time and patience to manage.