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The First Home Super Saver Scheme (FHSSS)

Saving for your first home can be a challenge. The recent introduction of the First Home Super Saving Scheme (or FHSSS) may be a welcome opportunity to give your savings for your first home deposit a small boost.

Under the FHSSS, from 1 July 2018 you’ll be able to withdraw up to $30,000 of eligible contributions made to your super from 1 July 2017 to help you purchase your first home.

The key features and considerations include:

• Withdraw up to $30,000 of eligible contributions per person (maximum of $15,000 of contributions made in any single year), plus associated earnings, minus any applicable tax.
• Applies to both before and after-tax contributions. What works best for you will depend on your income.
• Withdrawals of before-tax contributions will be taxed at your marginal rate less a 30% offset, or a flat 17% if your marginal rate can’t be estimated by the Australian Taxation Office. No tax applies to withdrawals of after-tax contributions.
• Associated earnings are calculated using a deemed rate of return set by the ATO every three months, not the actual earnings on your super account.
Contributions caps still apply.
• If you withdraw FHSSS contributions but don’t use the money to buy a new home, additional tax may apply.

Who is eligible for the scheme?

To be eligible, you must:

• be at least 18 when you request a release of eligible contributions,
• have never owned property in Australia (including investment properties, commercial properties, a lease of land or a company title interest in land),
• not be purchasing vacant land, a houseboat, a motor home, or any property not capable of being occupied as a residence; and
• not have previously requested release of money under the FHSSS.

What are eligible contributions?

FHSSS-eligible contributions include:

  • Before-tax contributions, such as:
    • salary-sacrifice contributions, or
    • personal contributions for which a tax deduction is claimed
  • Voluntary after-tax contributions

What are not eligible contributions?

Contributions that are not FHSSS-eligible include:

  • Superannuation guarantee contributions
  • Employer contributions made under an award or enterprise agreement
  • Government contributions (e.g. co-contributions)
  • Contributions paid into your account by a spouse, parent, etc
  • Contributions made in respect of a defined benefit interest 

Why consider it?

Before-tax contributions to super are generally taxed at a rate of 15%. For many of us, this is less than the tax rate we pay on assessable income outside super, which could be up to 45% plus the Medicare levy. Withdrawals of before-tax contributions under the FHSSS are taxed at your marginal rate, less a 30% tax offset. This is a key potential advantage the FHSS scheme offers over traditional savings: there may be tax savings, which can be added to your total deposit for a first home.

After-tax contributions may make you eligible for a government co-contribution if your income in under a certain amount.

Finally, the associated earnings may be higher than other forms of investment, for example, term deposits.

What else is there to consider?

The government has capped the amount you can withdraw under the scheme: a $15,000 limit applies to the contributions that can be eligible from any one financial year and a $30,000 limit applies to the total contributions that can be eligible for withdrawal across all years. This means if voluntary contributions of $20,000 are made during a financial year, only $15,000 can later be withdrawn from those contributions. Note that these figures apply to individuals -a couple can withdraw a combined total of $60,000 ($30,000 from each account).

The annual contributions caps still apply. In particular the $25,000 per person cap on before-tax contributions, which also includes Super Guarantee employer contributions, may limit the amount you can contribute and save under the scheme. 

Associated earnings are calculated based on the 90 Day Bank Bill Rate, plus 3%. It’s important to note that this can be more or less than the actual earnings on your account. In the event that the earnings on your Sunsuper account (minus any fees and insurance premiums that apply) are lower than the associated earnings calculated on your FHSSS contributions, you will not be able to withdraw more than your Sunsuper account balance.

Ready to enter the housing market?

From 1 July 2018, when you are ready to start looking for your first home, you can apply to the Australian Taxation Office who will advise you of the maximum amount of your super that can be released to you. This amount will effectively be:

  • a return of voluntary contributions you have made, plus
  • associated earnings, minus
  • any tax that will apply - if the released contributions were made on a before-tax basis, the ATO will withhold tax equivalent to your marginal tax rate less a 30% offset (or a flat 17% if your marginal tax rate cannot be estimated).

You will need to buy a home within 12 months of release of the funds from super. However, an application can be made to the ATO for a 12-month extension for the purchase to occur. 

What if I withdraw the money, but don’t purchase a new home?

If you don’t go ahead with the purchase, you can put the released amount back into your super, or keep the money. If the released contributions were made on a before-tax basis and you decide not to put them back into your super account, they will be subject to a flat tax of 20%.

As with any major financial decision, we encourage you to speak to a financial adviser. To speak to a Sunsuper adviser, just call us on 13 11 84.