The first home super saver scheme (FHSS) gives first time buyers the chance to boost their savings in order to get on the property ladder. The scheme lets eligible Aussies invest extra into their super fund and then withdraw that money to help fund a deposit. Here’s a simple guide for how the scheme works.
From July 1, 2017, eligible people could make contributions into their super fund under the scheme and from July 1, 2018, the first withdrawals were permitted.
What are the eligibility criteria?
To participate in the scheme, you need to meet certain criteria:
- You can’t draw any money out until you are 18 years old (though you can make contributions from any age)
- The withdrawn funds must be for your first property
- You can’t have previously asked the Australia Taxation Office (ATO) to release any funds from the scheme
- You must either live in the premises you are buying, or intend to as soon as practicable
- You must intend to live in the property for at least six months of the first 12 months you own it, after it is practical to move in
Can I take advantage of the scheme if I am self-employed?
Yes, there are no restrictions on who can take advantage of the scheme. Both employees and self employed Aussies can participate. You simply need to meet the normal eligibility requirements mentioned above.
How am I taxed?
Concessional contributions into super include the amounts your employer pays into super on your behalf, any amounts you salary sacrifice or any amounts you pay into super and claim a tax deduction for through your tax return.
Your concessional contributions cannot exceed $27,500 per year and, as the name suggests, are taxed concessionally.
For example, if you salary sacrifice $15,000 into your super, you’ll reduce your taxable income by $15,000, saving tax at your marginal rate.
If you’re a typical taxpayer on the 32.5 per cent income tax rate, that means you’ll save $4,875 in income tax (the saving is greater for higher income earners who pay tax at higher rates) meaning that the contribution has actually “cost” you just $10,125.
The super fund will pay tax at a flat rate of 15 per cent on the contribution, which equates to $2,250, leaving $12,750 after tax in the fund.
When the after tax contribution is withdrawn, it will be taxed at your marginal rate less a tax offset of 30 per cent, which in our example equates to a 2.5 per cent tax charge, or $318.75 (ignoring any growth in the fund that might have occurred over the period the amount was invested).
In simple terms, then, you’ve spent $10,125 on the contribution and got back $12,431.25 to put towards your house deposit, a benefit to you of $2,306.25 for just one years’ contribution.
Is there a “maximum” amount I can take out?
The maximum amount that can be taken out was increased to $50,000 in July last year, from $30,000 previously, of accumulated contributions.
No more than $15,000 of that can relate to the contributions from any one financial year which means that, you need to have made over three years’ worth of contributions at the annual maximum of $15,000 before you can withdraw the maximum $50,000.
Whilst your super has been in your fund, it will (hopefully) have grown in value due to the investment performance of the fund so you will also receive an extra amount that corresponds to the earnings on those contributions.
If you’re in a couple and you both meet the eligibility criteria, you can jointly draw a maximum of $100,000 combined.
What if I am buying a property with someone who has owned a property before?
Your ability to access the scheme is assessed only on your own circumstances, not on the circumstances of anyone else you might be buying a property with.
Ideally, each of you will be first time buyers and you’ll each be able to draw the maximum amount from your super to pay towards the deposit. But if you’re buying with someone who has previously owned, you’ll still be eligible to draw from your super, even if the person you are buying with can’t.
So, whether you’re buying as part of a couple, with siblings or friends, each of you can access their own FHSS contributions to pay towards a deposit.
If any of you have previously owned a home, it will not stop anyone else who is eligible from applying.
How do I withdraw my money?
When the time comes to remove your money to put it towards your deposit, you need to apply to the ATO for a FHSS determination and a release.
The ATO must have released your FHSS amount to you before you sign a contract on a property or you may be liable to pay FHSS tax.
The ATO will issue a release authority to your super fund. It will take approximately 25 business days for your fund to release your money and for the ATO to subsequently pay it to you, net of the appropriate amount of tax.
If you’re looking for help or advice with your superannuation, please feel free to contact us any time to talk to one of our experienced financial consultants or a tax advisors here at H&R Block.