The hardest part of buying a property for most young Australians is saving for a 20% deposit. With house prices on the rise, buyers are no longer looking at a $50,000 to $100,000 deposit; today, it is closer to $150,000 or $200,000, which can seem like a tall order.
Although you can secure a loan with a 5% to 10% deposit via Lenders Mortgage Insurance (LMI) or a family pledge, there is also the First Home Super Saver (FHSS) scheme. This initiative allows you to make voluntary contributions to your superannuation fund and take advantage of the tax-effective environment inside super, as well as a tax offset when the funds are released to you.
How Does the First Home Super Saver Scheme Work?
Are You Eligible?
- Age Requirement: You must be at least 18 years old when you request the release of your funds, meaning you can start contributing to your super before turning 18.
- Property Ownership: You must not currently own, or have previously owned, property or land in Australia.
- Occupancy Requirements: You must intend to occupy the property as soon as practicable and commit to living in it for at least 6 of the first 12 months of ownership.
- Hardship Provision: If you previously owned a home but lost it due to financial hardship, you may still be eligible to apply under specific ATO hardship provisions.
How Do You Contribute?
- Voluntary Only: Contributions must be strictly voluntary, meaning they cannot include compulsory superannuation or Superannuation Guarantee (SG) contributions paid by your employer.
- Concessional (Before-Tax) Contributions: You can make before-tax contributions, such as through a salary sacrifice arrangement. You must ensure these contributions do not exceed the annual concessional contribution cap of $30,000 (which includes both your employer’s compulsory contributions and your voluntary contributions).
- Non-Concessional (After-Tax) Contributions: You can contribute using your personal after-tax savings. The standard non-concessional limit is $120,000 per annum, or up to $360,000 by utilising the three-year bring-forward rule.
How Much Can You Withdraw?
You can contribute up to $15,000 per financial year specifically towards this scheme, up to a lifetime maximum withdrawal limit of $50,000 per person.
In this example, we used a tax bracket of 30%, which falls in line with the median income of $74,100 in Australia.
You can see that there is a tax saving of around $2,400 on the $15,000 contribution (16%) compared to investing the funds in your personal name.
Risks & Things to Look Out For
- The 20% Non-Compliance Tax: If you do not purchase a property within 12 months of releasing the funds (or within an approved ATO extension period), you must recontribute the money back into your superannuation fund. Otherwise, a flat 20% statutory tax penalty will apply to the assessable released amount.
- Strict Timing and Administration: The release process is not instant and correct timing is vital. You must apply for and receive your official FHSS Determination from the ATO before signing a contract for any residential property or land. If you sign a property contract before obtaining your determination, you will become entirely ineligible to withdraw your savings under the scheme.
- Breaching Contribution Caps: You must monitor your contributions to ensure you do not breach the $30,000 concessional cap or the $120,000 non-concessional cap, as doing so can trigger significant tax penalties.
- Government Debt Offsets: If you have an outstanding debt with the ATO (such as an unpaid tax bill) or Services Australia (such as Centrelink debt), the government will automatically apply your released funds towards clearing those debts first. As a result, the final cash amount paid into your bank account may be lower than expected.
Is the First Home Super Saver Scheme Right for You?
While this scheme offers substantial tax benefits, it is a rigid process governed by complex timing rules, penalties and strict compliance requirements. It is highly recommended that you plan ahead and speak with a financial adviser to ensure you navigate the process smoothly.
If you believe this scheme could benefit you, please speak to a licensed financial adviser to confirm whether it is suitable for your personal circumstances.
This information is general in nature and does not take into account your personal objectives, financial situation or needs. It is not intended as financial advice. Please speak with a licensed financial adviser before making any decisions about your superannuation.
