Last updated on 6th Jul 2023
The First Home Super Saver (FHSS) scheme allows you to use your superannuation savings to help purchase your first home. This guide explains the eligibility criteria, the process involved, and the benefits of using the FHSS scheme.
Who Can Use the FHSS Scheme?
The FHSS scheme is available to individuals who:
- Are over 18 years old.
- Have never owned property in Australia.
If you are planning to buy a home jointly with someone who has previously owned a property, you can still use the scheme, even though your joint owner cannot. The FHSS scheme may also help you support a family member or loved one in achieving their homeownership dream.
The Steps of the FHSS Scheme
- Make Voluntary Contributions: Contribute voluntarily to your super fund.
- Request an FHSS Determination: Contact the Australian Tax Office (ATO) to determine how much you can withdraw.
- Review the Determination: Check the maximum withdrawal amount available to you.
- Request a Withdrawal: Apply to the ATO for the withdrawal.
- Receive Payment: The ATO will instruct your super fund to release the amount, withhold tax, and pay you the balance.
- Use for Home Purchase: Utilize the withdrawn amount to help purchase your first home.
- Notify the ATO: Inform the ATO that the withdrawal was used for buying your home.
If the withdrawn amount is not used to buy a first home or is not used within the specified time frame, it must be contributed back into your super fund to avoid penalty tax.
Contributions
Only voluntary contributions can be withdrawn under the FHSS scheme. These include:
- Salary sacrifice contributions made by your employer.
- Personal contributions made by you, including those claimed as a tax deduction.
Contributions under the scheme count towards your superannuation contribution caps. Only the first $15,000 of voluntary contributions each year count towards the scheme, up to a lifetime limit of $50,000 (increased from $30,000 on July 1, 2022).
Withdrawals
Withdrawals under the FHSS scheme have been available since July 1, 2018. Before making a withdrawal, apply to the ATO for an FHSS determination to find out your maximum withdrawal amount, including accrued earnings. Then, request the withdrawal from the ATO.
The withdrawal will include:
- An amount related to concessional contributions (such as employer and deductible contributions) plus earnings.
- An amount related to non-concessional contributions, which will be tax-free.
The concessional contributions and earnings will be taxed at your marginal tax rate, less a 30% tax offset.
Using Your Withdrawal
After withdrawal, you usually have 12 months to purchase or start constructing your first home. You must live in your home for at least six of the first 12 months. If you do not use the withdrawal to buy a home, you may incur penalty tax but can avoid it by recontributing the amount back into your super fund within the 12-month period.
Tax Benefit
The FHSS scheme offers tax benefits by allowing pre-tax and tax-deductible contributions to your super fund for your deposit. These contributions are taxed at 15%, rather than your marginal tax rate, which may be as high as 47% with the Medicare levy. The 30% offset on withdrawal ensures this saving is not heavily eroded by tax.
Conclusion
The FHSS scheme can significantly boost your retirement savings and help you save for a home deposit with tax benefits. Consult with your financial adviser to navigate the FHSS scheme and maximize your tax savings.
The information contained in this article is general information only. It is not intended to be a recommendation, offer, advice or invitation to purchase, sell or otherwise deal in securities or other investments. Before making any decision in respect to a financial product, you should seek advice from an appropriately qualified professional. We believe that the information contained in this document is accurate. However, we are not specifically licensed to provide tax or legal advice and any information that may relate to you should be confirmed with your tax or legal adviser.
