What is FHSS First Home Super Saver Scheme

How the FHSS works

Buying a home is not an easy task and one of the main obstacles is saving money for a home deposit and other upfront costs such as stamp duty and conveyancing fees.

For this reason, the Australian Government runs a program called the First Home Super Saver Scheme (FHSS) to help first home buyers save for their first home.

Eligible first home buyers applying for a home loan can make voluntary concessional and non-concessional contributions to their superannuation fund to help them save for a home.

If the invested amount is made concessionally, it is likely that you will be paying less tax on that amount (as opposed to paying your normal top marginal rate of income tax on it) - which of course goes towards your deposit, instead of ending up in the tax-man's hand.

And secondly, any income earned from your investment in the FHSS (whether that principal investment was made on a concessional or non-concessional basis) will only be taxed at 15% (as opposed to your top marginal rate of income tax). Both of these factors can help you save for a deposit more quickly.

How do you qualify for the FHSS?

The FHSS does have some specific eligibility requirements. To be eligible for FHSS, you must:

• Have never owned a property in Australia – This scheme is geared towards first time home buyers only. You must never have owned a property, including an investment property, a commercial property or an interest via a company title.

• Have never previously released any amount under FHSS – There is no age restriction when making a voluntary contribution to superannuation, however, you must have never withdrawn any amount under the first home super saver scheme previously.

• Intend to live in the property for at least six months of the first 12 months of ownership, after it is practical to move in.

• Either live or intend to live in the premises you are buying as soon as practicable.

How to make contributions?

Contributions are made via a super fund, and it's possible to make contributions into more than one fund. Home buyers can make voluntary concessional contributions (before tax) and non-concession contributions (after you've already paid income tax on it) in order to save for a home loan deposit.

The maximum contribution a home buyer can make is limited to $15,000 in one financial year and $30,000 in total. Salary sacrifice contributions are taxed at 15% and non-concessional contributions are taxed at 0%.

If you are employed, ask your employer about salary sacrificing. This is making extra before-tax contributions to superannuation from your salary. The amount you want to contribute is up to you, just as long you don't exceed $15,000 in one financial year.

If you are applying for a home loan when self-employed, you will need to make contributions to your super fund yourself.

If you are buying with an FHSS-qualified partner, sibling, or a friend, each of you can contribute individually and then later combine the funds into a single home loan deposit.

The contributions made above the first home super saver scheme limit will remain in your superannuation fund.

How to make a withdrawal

Starting on 1 July 2018, you can withdraw your FHSS voluntary contributions by applying to the Australian Taxation Office (ATO).

To withdraw your contributions, you must request an FHSS determination from the ATO. This will show how much money can be released. You will need to download the approved form from the ATO website.

Take note that you can only request a release once.

The ATO will issue a release authority to your super fund or funds, and your each fund will then send the requested release amount to the ATO. A payment summary will then be sent to you.

Once your contributions have been released, you have 12 months to sign a contract to buy or build your own home. If you were not able to purchase or build within this timeframe, you may either apply for an extension of up to 12 months, or keep the funds and be subjected to an FHSS tax.

Is the FHSS worth it?

The biggest advantage of the FHSS Scheme is the benefits of tax savings. Voluntary contributions to your super fund are usually only taxed at 15%, which can be significantly lower than your marginal tax rate. 

As a result, the benefits gained from the scheme will largely depend on the size of your taxable income and your individual financial situation

Pros of the FHSS Scheme 

• Potential to save a significant amount in tax compared to saving your income in a standard savings account

• It allows you to take advantage of compound interest and tax concessions available for making additional contributions to your superannuation 

• Both partners in a couple are able to participate in the scheme and combine the funds together to pay for the deposit

• After withdrawing you have up to 12 months to purchase a home, and this can be extended by 12 months 

Cons of the FHSS Scheme

•  Salary-sacrificing will mean a having less take-home pay 

• The capped maximum of $50,000 for a single person contribution may not be enough to account for a full home loan deposit. Even as a couple combining your saved funds, you may need to make additional savings to avoid paying LMI 

• The process of withdrawing your funds can take up to 25 business days. In addition, if you sign a contract to either build or buy a home before the funds are released there is a 20% tax

Understanding the full benefits and costs of the scheme, as well as assessing alternative strategies for saving for a house deposit, can become quite complicated. That's why it's important to always seek professional financial advice. 

Given this scheme can be quite complicated, you might want to think about speaking to a financial adviser about it. 

Other helpful resources: 

• What are the upfront costs of buying a home? 
• What is the process of buying a home? 
• Fixed vs variable rate home loans: pros and cons 

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