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July 7th, 2021
Saving for a first home deposit is challenging.
Now that we’ve stated the obvious, what can you do about it?
You might be surprised to learn that over the last few years the Government has made some changes to super so first-time buyers can save faster for a home using their super account.
While this sounds great on paper, it’s important to know the rules and be sure it’s right for you before dipping into the bank of future you.
First introduced in 2017, the FHSS scheme gives you another option for where to save your deposit, alongside your bank account and any investments.
To be clear, you can’t just rip your existing savings out of super to buy a two-bedroom townhouse with endless potential on a lovely street. Instead, the idea is this will help you save faster.
Super is taxed favourably to encourage people to save for their own retirement. You’ll pay a maximum of 15% on any money contributed to super, which is usually less than the income tax your pay on your salary before it hits your bank account. Plus, you’ll earn a rate of return on your FHSS savings that is likely to be higher than the interest on any bank savings.
To use the FHSS scheme, you’ll need to make voluntary contributions to super. This means contributions you make personally by EFT or BPAY, or additional salary sacrifice contributions you’ve asked your employer to make for you. (Standard employer contributions, known as Super Guarantee, don’t count.)
You don’t have to do anything special when making these contributions, like telling us what they’re for. That comes later when you’re ready to withdraw the money.
To be eligible, you must be at least 18, you can’t have already owned a property in Australia, and you mustn’t have used the FHSS scheme before.
Currently, the most you can contribute under the FHSS scheme is $15,000 each financial year and $30,000 in total (subject to the super contribution caps). But in its 2021 Budget announcements, the Government flagged increasing this withdrawal limit to $50,000 on 1 July 2022. However, this hasn’t been passed into law yet, so if you’re looking to buy a house before the middle of next year, this increase won’t benefit you.
The maximum “release amount”, as it’s known, is the total of what you contributed plus any earnings – minus relevant tax.
While the workings out are complex, you should know there’s no risk of losing money under this scheme. The earnings on your contributions are calculated at a pre-determined rate and are not based on the actual earnings of your super fund, so even if super returns were negative, your withdrawal would still exceed what you originally contributed.
To withdraw your money, you need to apply for a FHSS “determination” from the Australian Taxation Office (ATO) before you purchase a house, then complete a “release authority”.
Eligibility rules and terms and conditions are strict. While these may be relaxed in 2022, right now if you get any of the rules wrong there’s a big risk your money may have to stay in super. While this is good for future you, it’s not so great for current you who’s already spent $800 on homewares from K-mart.
It’s important to know First Super doesn’t make the rules for the FHSS scheme. This is up to the ATO. We also can’t appeal to them on your behalf if they decide you don’t qualify. Our job is simply to accept your contributions and only release them as part of the FHSS scheme if the ATO asks us to.
To learn more about the First Home Super Saver scheme, visit the ATO website.
Or contact our Member Services Team to discuss your super choices.
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