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If you’re an Australian looking to buy your first home, the new First Home Super Saver Scheme (FHSS scheme) could be a great way to help you save for a deposit. The scheme allows you to make voluntary contributions of up to $15,000 per year into your superannuation account, which can then be withdrawn for the purchase of a home. In this article, we’ll explain how the scheme works and tell you how to make the most of it.
What is the FHSS scheme?
Introduced in 2017, the scheme allows individuals to make voluntary concessional (before-tax) and voluntary non-concessional (after-tax) contributions into their super fund to save for a first home purchase.
In other words, this Federal Government initiative allows Australians to save for a home deposit by making voluntary contributions into their superannuation account. Contributions can be made in either concessional (before-tax) or non-concessional (after-tax) form and can be up to $15,000 per year. When it comes time for you to purchase your first home, those extra funds you have contributed to your superannuation account can be withdrawn for the purchase of a first home, although there are restrictions on how the money can be used.
Who does this scheme benefit?
The government is broadly targeting a small sector of the first home buyer market in Australia:
- Those about to purchase their first home and have been contributing extra funds into their superannuation account for some time.
- Those that are just starting out on their savings journey and want to be smart about their savings strategy.
Eligible applicants who wish to make a request to withdraw from your superannuation under the scheme must:
- be over the age of 18, however, you can start making voluntary contributions to your super before you are 18, and those funds can be released to you on request when you are ready to purchase a property after you are 18 years of age.
- have never owned property in Australia.
- have not previously made a FHSS release request under the FHSS scheme.
If you were to access this scheme, applicants must:
- occupy the premises that they purchase or are intending to move into the purchased home “as soon as practicable”, according to the Australian Taxation Office (ATO).
- intend to occupy the property for at least 6 months within the first 12 months you own it, after it is practical to move in.
How much can you contribute and request a withdrawal of?
Naturally, the scheme is limited in how much of your super you can request a release of:
- The scheme does provide access to your voluntary superannuation contributions and associated earnings up to a limit of $50,000 plus the associated earnings from those contributions.
- Currently, you can apply to have a maximum of $15,000 of your voluntary contributions from any one financial year included in your eligible contributions to be released under the FHSS scheme, totalling $50,000 worth of contributions. Any interest earned on those contributions are also eligible for you to receive.
- For release requests made before July 1st 2022, there was a $30,000 limit on eligible contributions.
- For release requests made after July 1st 2022, there is a $50,000 limit on eligible contributions.
The intended benefits of the Scheme:
The main benefit of the scheme comes from savings made under various tax regimes. We’ll explain:
- If you make voluntary contributions by salary sacrificing, those contributions are taxed at a rate often significantly lower than the marginal tax rate that would otherwise apply “outside super”.
- “Inside Superannuation”, you will generally pay just 15% tax on superannuation contributions made from your pre-tax salary. Earnings you make on your money within super are taxed at a maximum of 15%. If you didn’t make any voluntary contributions, then that money remains as part of your taxable income and is taxed at the income tax rate that applies to you.
- Finally, given the restrictions in terms of accessing the money, the contributions held within Superannuation will either have to be used for a property purchase or will remain sitting in a tax-effective structure for your future financial wellbeing. There is no option of changing your mind and using the house deposit for a trip to Europe as an example.
How can a broker help?
Applying for the scheme can be a stressful process, and as you can see from the above, there are a few tricks to the scheme that can impact how much of the intended benefits you receive.
Engaging a trusted YBR Home Loans mortgage broker is a step you can take to make sure you maximise the intended benefits. The best part is, a mortgage broker generally won’t charge you a cent.
A broker can also guide you through the tricky application process under the scheme which involves:
- Making a release request to the ATO directly, who will make a determination on your eligibility, and decide how much you can withdraw from your super under the scheme.
- Following the outcome of your determination, you then apply to the ATO to withdraw the amount desired.
- Following a valid release request, the ATO will issue a release authority to your super fund(s) requesting they send your FHSS amount to the ATO, who will then send you the balance.
- You must apply for and receive a FHSS determination from the ATO before signing a contract for your first home or applying for release of your FHSS amounts.
- You must enter into a contract to purchase or build your home within 12 months of your release request.
What does this all mean?
The FHSS scheme works in the favour of those home buyers who have a long-term savings strategy. The significant benefit of the scheme is only truly derived if you make voluntary contributions to your superannuation balance over a significant period of time.
If you either have been or are planning to make super contributions for a period of time, then the scheme is an excellent option to assist you with any deficits you have in your deposit. In Australia’s current property market, where rising interest rates are reducing many first home buyers’ borrowing capacity, those who have been participating in this scheme over previous years might find the extra boost of cash needed when they make their release request to the ATO.
If you’re new to the property market and have only recently determined that you need to start saving for a deposit, this scheme could be an ideal way for you to increase your deposit and thereby your borrowing capacity in several years’ time.
It’s always in your best interests to engage a mortgage broker who can guide you on your home loan application journey at no cost to you.
Reach out to us today to speak with one of our trusted brokers and they’ll ensure you get a fair deal on your home loan.
Get it right from the start with professional help.