Earlier this year the Federal Government introduced the First Home Super Saver Scheme, in response to the increasing number of first home buyers finding it difficult to enter the property market. So how does the scheme work, and should it be on your clients' radars as a strategy to enter the housing market?
What is the First Home Super Saver Scheme?
The First Home Super Saver Scheme (FHSSS) allows you to withdraw up to $30,000 of superannuation contributions and earnings for your first home.
First home buyers who make voluntary contributions of up to $15,000 (single) $30,000 (couple) in a financial year into their fund can withdraw these amounts, along with associated earnings, to help with a deposit on their first home. Your clients must meet the eligibility requirements to apply for the release of these amounts. If eligible the maximum amount of contributions that can be withdrawn under the scheme is $30,000 (single) or $60,000 (couple) plus associated earnings.
Who is eligible
- Be aged over 18 years of age,
- Have never owned a property before, and
- Have never previously used the first home super saver scheme to buy a property
Contributions count towards the FHSS scheme
Your clients can make the following existing types of contributions made by the member of the fund since 1 July 2017 towards the FHSS scheme:
- voluntary concessional contributions – including salary sacrifice amounts or contributions for which a tax deduction has been claimed. These are taxed at 15%
- voluntary non-concessional contributions that you have made – these are made after tax or if a tax deduction has not been claimed.
Only super guarantee contributions made by their employer as well as spouse contributions are ineligible to contribute to FHSSS.
Is there any benefit from using the FHSSS for a house deposit?
Yes. According to the Australian Government Fact Sheet 1.4 First Home Saver Scheme Budget 2017, For most people, the scheme could boost the savings they can put towards a deposit by at least 30 per cent compared with saving through a standard deposit account. This is due to the concessional tax treatment and the higher rate of earnings often realised within superannuation.
Case study: Boosting Michelle and Nick's first home deposit
Michelle earns $60,000 a year and wants to buy her first home. Using salary sacrifice, she annually directs $10,000 of pre-tax income into her superannuation account, increasing her balance by $8,500 after the contributions tax has been paid by her fund. After three years, she is able to withdraw $27,380 of contributions and deemed earnings on those contributions. Her withdrawal is taxed at her marginal rate (including Medicare levy) less a 30 per cent offset. After paying $1,620 of withdrawal tax she has $25,760 that she can use for her deposit. Michelle has saved around $6,240 more for a deposit than if she had saved in a standard deposit account. Michelle's partner Nick has the same income and also salary sacrifices $10,000 annually to superannuation over the same period. Together they have $51,520 that they can put towards a deposit, $12,480 more than if they had saved in a standard deposit account.
How to release your voluntary super contributions
Your client can withdraw their voluntary super contributions under the FHSSS scheme by requesting a FHSSS determination from the Commissioner of Taxation. Then the ATO will tell them their maximum FHSSS release amount. It will take approximately 25 business days for their fund to release the money and for ATO to pay it to your clients.
You need to include this amount in your tax return and taxed at your marginal tax rate, less a 30% tax offset, while after-tax contributions aren’t subject to tax.
What happens after your voluntary super contributions have been released?
Once your client's savings have been released:
- They have up to 12 months from the time the first amount is released to sign a contract to purchase or construct a home.
- They must purchase a residential premises.
- They must genuinely intend to occupy the property as a home, and demonstrate this by occupying or intending to occupy the property for at least 6 of the first 12 months from when it is practicable to occupy it.
If your client doesn’t sign a contract within 12 months from the time the first amount is released then they can either apply for an extension of time for a maximum of a further 12 months Or recontribute an amount into their super fund.
If this article has raised questions for you, please contact us today to discuss how we can help.