The FHSS, initiated by the government in late 2017, (changes to this scheme are scheduled to take place in September 2024, with the types of changes being unknown) aims to assist first-time homebuyers in saving for their initial home purchase. This scheme allows individuals to tap into specific eligible, voluntary contributions made to their super fund, taking advantage of the favorable tax treatment of investment returns within the super.
In essence, while earnings on investments held in your name are taxed at your marginal tax rate (potentially up to 47%), earnings on investments within your super fund enjoy a concessional tax rate of 15%.
- Investment returns outside super: Marginal tax rate (up to 47% including Medicare levy).
- Investment returns inside super: Taxed only up to 15%.
How FHSS Works:
The FHSS enables you to withdraw eligible, voluntary contributions made to your super account from July 1, 2017. You can contribute up to $15,000 per year and a total of $30,000 under the scheme. Withdrawals are permitted from July 1, 2018.
You can also access associated earnings calculated by the ATO based on a set rate on eligible contributions you withdraw. Depending on market conditions, your super savings may outperform a regular savings account, leading to potential tax savings.
Eligible contributions include salary sacrifice contributions, personal contributions, and voluntary employer contributions (excluding mandatory contributions like Super Guarantee). Contributions must adhere to existing concessional and non-concessional caps.
Who is Eligible for FHSS?
To qualify for the FHSS Scheme:
- You’ve never owned any property in Australia.
- You’re not using FHSS amounts to purchase specific property types.
- You’ve not previously requested an FHSS release.
- You’re 18 years or older at the time of withdrawal.
Eligibility is assessed individually, allowing couples or those purchasing with others to pool funds if all requirements are met. For more details, refer to the ATO’s FHSS Scheme page.
Withdrawing Your Funds:
From July 1, 2018, you can apply to withdraw eligible contributions and associated earnings for your first home purchase or construction.
Earnings are calculated by the ATO using a formula, not the actual earnings in your fund.
You can apply for a maximum release of $15,000 per financial year and $30,000 in total. Certain components of the total amount released may be subject to tax at your marginal tax rate or 17%, depending on circumstances.
In addition to meeting other terms, you must occupy or intend to occupy the property and live in it for at least six of the first 12 months. If funds aren’t used as specified, they may need to be returned to super or incur additional tax.
It’s crucial to note that if your intentions change, and you no longer plan to buy a home after making contributions, accessing the funds may be limited until you meet a ‘condition of release.’
Jane, earning $60,000 annually, uses salary sacrifice to direct $10,000 into her super account yearly. After three years, she withdraws $25,758. If she had deposited the amounts in a savings account earning 2%, she would have had $6,239 less for a deposit at the end of the same period.
Ensure your nominated super fund will release the money, and check for any associated fees or charges, as some funds may not release funds, especially defined benefit or constitutionally protected funds.