First Home Super Saver Scheme

We've updated this article so you get all the facts right about First Home Super Saver (FHSS) in 2024 and beyond. Read on.

The First Home Super Saver (FHSS) Scheme, which came into effect on 1 July 2018, is a scheme that allows eligible first-home buyers to save money in their super account to help them purchase their first home and also potentially save tax in the process. The scheme allows you to make voluntary contributions into your super fund and then withdraw this amount (plus earnings, less tax) to buy your first home.

How much is the FHSS Scheme voluntary contribution?

The maximum amount that a person can contribute and withdraw as part of the FHSS Scheme is $15,000 per financial year or $30,000 in total.

In the May 2021 Federal Budget, the government announced that it would increase the maximum amount that can be released under the FHSS Scheme to $50,000 across all years. This change is proposed to take effect from 1 July 2022 eligible voluntary contributions but it has not yet been legislated.

How does the FHSS Scheme benefit first-home buyers?

Due to the concessional tax treatment available in super, any savings put into super account have the potential to grow at a faster rate than if the savings were invested personally outside super.

This is because super fund contributions and earnings are taxed at a maximum rate of 15% in super, whereas your marginal tax rate will generally be in the range of 32.5% to 45% plus the Medicare Levy, depending on your income.

That also means that for first-home buyers utilising the FHSS Scheme, making savings into super will help them grow their home deposit more quickly and assist with purchasing their first home sooner.

For example:

Lizzie earns taxable income of $85,000 a year, meaning that her marginal income tax rate is 34.5%, including the Medicare Levy. If she saves $10,000 outside super, she pays 34.5 cents in tax for every dollar earned, or $3,450. However, by contributing the $10,000 to super, she only pays 15% tax on the contributions that she makes, or $1,500. This is a saving of $1,950.

What kind of eligible contributions can be made towards the FHSS Scheme?

These can be voluntary concessional (before-tax) contributions such as eligible salary sacrifice contributions or personal contributions for which a tax deduction has been claimed or these can be voluntary non-concessional contributions made from after-tax income for which no tax deduction has been claimed.

Is there any tax payable once you withdraw the super funds?

Yes. Your assessable First Home Super Saver (FHSS) scheme amount will be taxed at your expected marginal tax rate, less a 30% tax offset. The assessable FHSS scheme amount is made up of your concessional contributions and the associated earnings on both your concessional and non-concessional contributions. The associated earnings are deemed earnings calculated by the Australian Taxation Office (ATO) using a formula and are not the actual investment earnings on your super contributions.

There are eligibility requirements, and some further issues to consider prior to applying to be part of the FHSSS.

Who is eligible to use the FHSS Scheme?

To qualify for the FHSS Scheme eligibility criteria, you must:

• Be 18 years of age or older;
• Not have previously owned property in Australia – this includes owner occupied property, investment property, vacant land, commercial property, a lease of land or a company title interest in land in Australia (unless the ATO deems that you have suffered financial hardship);
• Live or intend to live in the property you are buying as soon as practicable after purchase, or live or intend to live in the property for at least six months of the first 12 months that you own it;
• Not have previously released an amount from super under this scheme.

Note that your home loan eligibility is assessed on an individual basis. This means that members of a couple can each access their own maximum FHSS amounts to purchase the same property. Therefore, as a couple, you could potentially save a combined house deposit of $60,000 to help purchase your first home.

What else should you be aware of?

• You can only buy residential premises using the funds released. This excludes houseboats, motor homes, vacant land (unless you plan to build your home on the land), or any premises that cannot be occupied as a residence.
• The ATO will offset the remaining amount against any outstanding Commonwealth debts.
• Your total super contributions – including contributions made under the FHSS Scheme – must still be within your annual contribution caps. For the 2021/22 financial year, the annual contributions caps are $27,500 for concessional contributions and $110,000 for non-concessional contributions.
• If you do not sign a contract to purchase residential property or build a home within 12 months of accessing your FHSS contributions, you can either:
  • Apply for an extension of 12 months from the ATO;
  • Recontribute the money into your super as a non-concessional contribution, subject to your annual contribution cap; or
  • Keep the money, but you will be subject to an additional flat tax rate of 20% on the assessable FHSS amount.

How does one apply for the FHSS Scheme?

You must apply for a FHSS scheme determination from the ATO using your myGov Account. Once the determination has been processed by the ATO, you can request for the funds to be released, again via your myGov Account.

To find out more about how you can take advantage of the FHSS scheme, or get into your first home sooner, please get in touch with the team at Cutcher & Neale.

Other FHSS-related Frequently Asked Questions

How much tax do you pay on FHSS?

The tax implications of the First Home Super Saver (FHSS) Scheme are twofold. First, your voluntary contributions to the scheme are taxed at a concessional rate of 15% within your superannuation fund. When you withdraw these contributions and associated earnings to purchase your first home, the amount is included in your assessable income and taxed at your marginal tax rate.

However, you receive a 30% tax offset on this assessable income, which reduces the overall tax payable on the withdrawal.

What are the cons of FHSS?

No system is perfect. Thus, the FHSS has several potential downsides. One significant con is the possibility of legislative changes that might affect the benefits or rules of the scheme. Additionally, funds saved through the FHSS cannot be accessed until certain criteria are met, which limits financial flexibility.

There's also the risk that the investment returns on your superannuation savings may be lower than expected, which could affect the total amount available for your home purchase. Furthermore, the process of making contributions and withdrawals can be complex, and you might need professional financial advice to navigate it effectively.

How does FHSS work?

The First Home Super Saver (FHSS) Scheme is designed to help individuals save for their first home by leveraging the tax advantages of superannuation. You can make voluntary contributions to your superannuation fund, up to certain limits, which are taxed at a concessional rate of 15%. These contributions, along with any earnings on them, can be withdrawn when you are ready to purchase your first home.

The amount you can withdraw is capped at $15,000 of voluntary contributions per financial year, with a maximum of $50,000 across all years. When you withdraw these funds, they are taxed at your marginal tax rate, but you receive a 30% tax offset to reduce the tax payable.

Is the first home super saver worth it?

The First Home Super Saver (FHSS) Scheme can be worthwhile for many first-time home buyers due to its tax advantages and structured savings approach. Saving through the FHSS can give you a lower tax rate on superannuation contributions and the potential for higher returns within your super fund compared to regular savings accounts.

This can make it easier to accumulate a larger deposit for your home purchase. However, it's essential to weigh these benefits against potential drawbacks, such as the risk of legislative changes and the limited accessibility of funds. Additionally, individual financial circumstances and long-term goals should be considered to determine if the FHSS aligns with your home-buying strategy.