Is the First Home Super Saver Scheme really super?

Property prices in today’s market undoubtedly make saving for your first home a gargantuan task. And that’s even before we consider current lending requirements…

In response to this affordability issue, the government announced the First Home Super Saver (FHSS) Scheme to allow first homebuyers to use their super account to save some of the money they need for a home deposit. This scheme is now law and eligible Australians have been able to make super contributions since 1 July 2017 however there is still much confusion about the scheme and what the real benefits are.

So what is the FHSS?

Basically, since 1 July 2018, any super contributions made to a super account under the FHSS can be accessed for the purchase of a first home, subject to other eligibility rules. However, it’s not that straight forward when you look closely, and it’s definitely not for everyone!

When deciding whether or not the scheme is for you there are 7 important things you should consider;

1. Limits on how much you can save

The maximum amount you can contribute to super for a home deposit is 30,000 and any super contributions you make must be within your annual contribution’s caps.

  • Concessional (before tax) contributions cap: $25,000
  • Non-concessional (after-tax) contributions cap: $100,000

The maximum amount you can contribute in a year under the FHSS is $15,000, and all contributions counted towards the scheme must be voluntary contributions. In other words, the Superannuation Guarantee (SG) amounts paid by your employer cannot be directed towards your FHSS savings.

2. Limits are for each person

Rules and limits for the FHSS apply to an individual which means both members of a couple planning to buy their first home are eligible to use the scheme to save for a home deposit. The individual-based limits will give couples the chance to save up to $60,000 using the scheme.

3. Eligibility

To be eligible for FHSS you must not have previously owned a home unless the Commissioner of Taxation determines you have suffered financial hardship and should be eligible for the FHSS.

However, FHSS is still a possibility for first home buyers looking to buy a property with someone who is not a first homebuyer.

4. Concessional contributions are taxed on the way in

FHSS contributions made using a salary sacrifice arrangement or as tax-deductible super contributions will incur a 15% contributions tax in their super fund.

For many people, this 15% tax rate on the concessional (before-tax) super contributions will be lower than the normal marginal tax rate they pay on their taxable income. However, those earning lower incomes may be paying less than 15% tax on their earnings already and should think carefully about whether FHSS provides any advantage.

5. Tax is payable on the way out too

Drawing concessional super before retirement generally results in a tax bill, and FHSS is no exception. Release of your contributions are deemed earnings made under the FHSS and will be taxed at your marginal tax rate less a 30% tax offset.

Its important to note that FHSS monies released to a first home buyer are not included in income tests. Meaning, they will not impact on HECS/HELP debts or social security entitlements such as childcare benefits.

6. The ATO is in charge

The earnings (interest) on your FHSS savings will be deemed using a formula calculated by the ATO. Under the scheme rules, the ATO will consider (or deem) that your contributions have earned a return based on the rate earned by 90-day bank bills plus 3% regardless of the actual return.

The ATO decides what counts towards the FHSS. The ATO will calculate the amount you contribute as part of the FHSS, plus your deemed return, and will advise your super fund on the amount that can be released when you submit an application to withdraw your deposit savings.

7. Time is of the essence

The ATO will not require proof of a home purchase before allowing release, but once the ATO does release your contributions, you must purchase your home within 12 months, or sign a contract within 12 months to build a house. If this does not happen, you can apply for an extension of up to 12 months, or recontribute the amount to your super fund, or use the money for other purposes and pay additional tax.

According to the ATO, if you don’t notify the ATO that you have signed a contract to purchase a home, or signed a contract to build a home, or you have not recontributed the amount to your super account, then the ATO will automatically hit you with FHSS tax (20% tax on your assessable released FSSS amounts).

So, is the First Home Super Saver Scheme really super..?

Perhaps for some people.. however in reviewing the rules closely I would definitely suggest chatting with your accountant or calling the team at ABA Tax for advice in relation to your individual circumstances first. ABA Tax – 1300 797 175.

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