The First Home Super Saver Scheme: What is it and how does it work?

Housing affordability is an ongoing concern for many Australians, and a hotly debated topic both socially and politically. 

First-home buyers are faced with the very real challenge of saving a home deposit in a low interest rate and low real-wage growth environment. The prospect of saving a 20% deposit (the minimum amount required to avoid lenders’ mortgage insurance [LMI]) is further exacerbated by spiralling prices as Australia’s economy recovers from COVID-19. 

To assist the group, the federal government first introduced the First Home Super Saver scheme (FHSS) on 1 July 2017. In simple terms, the scheme allows super members to save for a first home deposit via their superannuation account as well as (or instead of) their bank account, which typically yields lower returns. 

The aim is to assist members to save their deposit faster by taking advantage of the concessional tax treatment on voluntary (additional) contributions made to super.  

Under the scheme, you can make voluntary contributions to super and then apply to withdraw this money to put towards a house deposit. The maximum that can be released under the FHSS scheme is $15,000 of contributions from a single financial year and $30,000 of contributions across all financial years since the scheme began (plus earnings related to those contributions). 

Recently, the federal government proposed increasing the amount members will be able to release under the scheme to $50,000 in total (or $100,000 for couples). This change won’t come into effect until 1 July 2022.  

Like any scheme, there are both advantages and disadvantages, which are explored below.

Advantages 

• Voluntary Concessional Contributions (before tax) made through salary sacrifice can provide a tax benefit because the contribution is taxed at a maximum of 15% as opposed to the member’s marginal tax rate, which is generally higher.
• Voluntary Non-Concessional contributions (after tax) are not taxed at all as it is assumed tax has already been paid in some form, e.g. savings from your take-home pay, where your marginal tax rate has been applied.
• The scheme is not just for individuals. A couple can contribute up to $15,000 each to their respective super fund per financial year, providing greater savings benefit.
• The Australian Taxation Office (ATO) will determine the associated earnings on applicable voluntary contributions, which may be higher than the interest rate offered by a bank.
• Earnings on applicable voluntary contributions are not included in the maximum annual or total release amounts of $15,000 and $30,000 respectively. The release amount is the sum of your eligible contributions plus associated earnings calculated using a deemed rate of return.
• The released amount and associated earnings will be subject to the member’s marginal tax rate less a 30% offset.
• Funds released under the FHSS can be used in conjunction with other savings for the first home deposit.
  

Disadvantages 

• A member cannot withdraw voluntary contributions made prior to 1 July 2017.
• There are annual limits to concessional and non-concessional contributions regardless of the FHSS – for more details see “How super is taxed”.  
• The contributions can only be withdrawn to purchase your first home in Australia. In the event your circumstances change (e.g. you inherit a home, decide to continue renting etc.), voluntary contributions remain within your super account until you meet a “condition of release”, such as retirement.
• The way in which your super is invested may generate a higher return than the ATO has determined as “associated earnings”, which will impact the total amount released to you.
• The ATO administers the scheme and requires members to submit a request to have funds released. You can request to have the funds released either before you sign a contract to purchase your property, or within 14 days of signing. The ATO determines if and how much of your applicable voluntary contributions can be released, withholding tax accordingly. Only the ATO, not First Super, can decide whether you meet the conditions to have your FHSS amounts released.
• Before you request to have your FHSS amounts released, you must apply to the ATO for an FHSS determination. If you don’t take this step before signing a contract, your voluntary contributions will remain in your super account.  

 

More information and support  

Before deciding if this scheme is right for you, it’s important to consider the pros and cons to make an informed assessment. For more information about FHSS refer to the ATO’s webpage, “First home super saver scheme”.  

At First Super, our Financial Advice team can assist you with personal advice regarding voluntary contributions such as salary sacrifice.

Get in touch today on 1300 360 988.