Don’t you wish you could use your super to buy a home?
Homeownership is a significant life milestone and a dream for many Australians. However, with the ever-increasing property prices and rising costs of living, it’s not always easy for first-time homebuyers to break into the market.
This is where the First Home Super Saver Scheme (FHSS) comes into play. It’s an initiative that leverages the power of superannuation funds to help individuals reach their homeownership goals.
The First Home Super Saver Scheme was introduced by the Australian Government to help first home buyers save faster using the lower tax environment of their superannuation fund.
The scheme allows you to make voluntary contributions to your superannuation and later withdraw those contributions, along with the associated earnings, to help buy your first home.
So here are 10 things you need to know about the First Home Super Saver Scheme:
You can get started saving for your first home in your super fund by making either voluntary concessional (before-tax) contributions or non-concessional (after-tax) contributions into your superannuation fund. These can be in the form of salary sacrifice arrangements with your employer or direct contributions from yourself.
It is important to remember, though, that the compulsory super contributions your employer makes for you and spouse contributions are not eligible to be used for the First Home Super Saver Scheme.
You can contribute up to $15,000 per financial year and a total of $50,000 across all years under the First Home Super Saver Scheme. This is on an individual basis, so a couple purchasing a house together can access up to $100,000 using the First Home Super Saver Scheme.
The maximum that can be released is the sum of your eligible contributions and the deemed earnings associated with those contributions. The eligible contributions are 100% of the non-concessional contributions made to your super fund and 85% of your eligible concessional contributions.
It is only 85% of the concessional contributions because 15% of these contributions has been paid to the Tax Office in contributions tax, so this is no longer part of your superannuation balance.
To be eligible for the First Home Super Saver Scheme, you must have never previously owned a home in Australia, including an investment property, vacant land, or commercial property, unless you are making an application on financial hardship grounds.
You must also not have previously requested the ATO to issue a First Home Super Saver Scheme release authority.
And you must be at least 18 years of age to apply for the release of your contributions under the First Home Super Saver Scheme rules. Although you can actually make eligible contributions before you are aged 18.
There is no requirement for you to be an Australian citizen, an Australian resident, or even an Australian resident for tax purposes.
It is important to remember, though, that you must not only be a first home buyer but also live in the property you purchase (or intend to live there) as soon as practicable after purchase or completion of the construction. You also need to live in the property for at least six months within the first 12 months you own it.
The rules and limits for the First Home Super Saver Scheme apply on an individual basis. This means that couples, siblings, or friends can each access their own eligible First Home Super Saver Scheme contributions to purchase the same property. If any of you have previously owned a home, it will not stop anyone else who is eligible from applying.
When you’re ready to buy your first home, you can apply to release the contributions and their associated earnings. The amount released will be less any tax payable, but the tax rate will be at least 30% below your marginal tax rate, providing a great tax advantage.
You can withdraw your savings when you are ready to enter the housing market. You do not need to have found your home yet; however, after you have withdrawn the money, you have 12 months to sign a contract to buy or construct a home. If you need longer, you can request a 12-month extension.
If you don’t buy a home after your time expires, you can either contribute the released amount back into your superannuation fund or pay a tax equal to 20 per cent of the concessional amount released. This removes the tax benefit you received from using the First Home Super Saver Scheme.
Just like most withdrawals from superannuation, with the exception, of course, of pension payments made once you have reached the age of 60, there’s a tax bill to pay when you withdraw your money from your superannuation fund using the First Home Super Saver Scheme.
Both the assessable First Home Super Saver Scheme amount and the withholding tax need to be declared in your tax return in the financial year in which you request a release from your superannuation for the First Home Super Saver Scheme. This may not be the same financial year in which you actually receive your First Home Super Saver Scheme money.
The associated earnings on your First Home Super Saver Scheme savings are deemed using a formula calculated by the ATO, not based on the actual investment earnings on your super contributions. These associated earnings are part of the calculation used by the ATO to work out how much you can withdraw under the First Home Super Saver Scheme.
Under the scheme rules, the ATO calculates your associated earnings using the 90-day bank bill rate plus 3%. The 90-day bank bill rate moves around in line with trends in investment markets.
It is important to remember that it is not your superannuation fund that determines what super contributions count towards the First Home Super Saver Scheme and the associated earnings. It is the ATO, and it then advises your super fund on the amount that can be released when you apply to withdraw your First Home Super Saver Scheme savings for your home deposit.
You must apply for and receive a First Home Super Saver Scheme determination from the ATO before you sign the contract for your first home or apply for the release of your First Home Super Saver Scheme amount.
Amounts released as part of the First Home Super Saver Scheme won’t be used to reduce the account balance of your higher education or trade support loan.
However, if you have an overdue income tax debt which includes a compulsory repayment for your study loan, then part of your released First Home Super Saver Scheme amount will be used to pay this compulsory repayment as it forms part of your income tax debt.
Your eligibility for the First Home Super Saver Scheme will not be affected if you use other state or federal home purchasing schemes.
While the traditional view of superannuation is centred on retirement, the First Home Super Saver Scheme highlights the versatility of these funds.
But there are lots of traps that you need to be very careful of, including that you need to notify the ATO within 28 days of signing a contract to purchase or build a home.
Getting even one of these steps wrong may mean the funds you intended to use to purchase your first home are trapped inside your superannuation fund until you reach retirement age, and you may find yourself needing to start saving for that elusive deposit all over again to get into your first home.
To ensure the best outcomes and avoid potential pitfalls, seek professional guidance before you begin.