The First Home Super Saver Scheme
First-home buyers have been able to use their superannuation to save for a deposit since 1 July 2017. This is due to the Federal Government’s introduction of the First Home Super Saver Scheme (FHSSS), which became law on 13 December 2017.
How does it work?
If you’re saving for your first home, you can make voluntary contributions of up to $15,000 per year into your super account to save for a deposit. A voluntary contribution is money you personally contribute to your super account, not the contributions that are made by your employer. Any voluntary contributions you have made since 1 July 2017 could be included.
The total amount of voluntary contributions you can use for your first-home deposit is capped at $30,000. First-home buyers can apply to withdraw these savings from super by visiting the ATO website, logging in to their MyGov account and completing the online application.
How can you make contributions?
There are two ways to make voluntary contributions to your super, and both can be counted toward your First Home Super Saver Scheme (FHSSS).
The first is by making before-tax contributions. This is usually done by salary sacrificing through your employer. Salary sacrificing means giving up part of your before-tax income to put straight into your superannuation account. These contributions will only be taxed at up to 15%, rather than your marginal rate, which could be as high as 47%. The FHSSS could help you save money on tax and therefore more money for your deposit. Keep in mind that before-tax contributions to your super account are subject to a $25,000 annual cap. Contributions made by your employer will also count toward this cap.
The second method of contributing is through after-tax contributions. An after-tax contribution is money you have already paid tax on, which you could contribute to your super balance straight from your bank account, for example. These contributions won’t have any tax-advantaged benefits, but will still receive interest at a deemed rate of return (see below) upon withdrawal. After-tax contributions are subject to a $100,000 annual cap.
Why would you save for a deposit through your super account?
Thanks to the tax benefits available in super, and the deemed rate of return available in the FHSSS (based on the 90-day Bank Bill rate plus three percentage points), the Government believes using an FHSSS will help first-home buyers save for a deposit faster. The FHSSS is also capped on an individual basis, so a couple could save a combined total of $60,000 (as long as they are both first-home buyers).
What else should you be aware of?
The ATO will process your application to withdraw the funds for your deposit. You will need to make your application through the ATO, and they will determine how much money you have available in your First Home Super Saver Scheme and whether you will be able to withdraw it.
There are some things to keep in mind if you are thinking about using the scheme:
- You have 12 months after receiving your FHSSS balance to sign a contract to purchase or build a new home. If you have not signed a contract within 12 months, you must either:
- apply for an extension of time
- recontribute the amount to your super fund
- keep the released amount, subject to an FHSSS tax.
- You must be 18 years or over to request a release of FHSS amounts.
- The maximum amount that can be released is $30,000 of personal contributions plus an associated deemed earnings amount.
- You may still be eligible for the FHSSS if the Commissioner of Taxation determines that you have suffered a financial hardship.
- If you breach your contributions caps while contributing to your FHSSS, you will be liable for penalties. Remember, the mandatory contributions made by your employer also count towards your $25,000 before-tax contribution cap. For example, if you contribute $15,000 before tax to your FHSSS, and your employer’s annual contributions are more than $10,000, you would be in breach of the $25,000 cap.
- Your before-tax withdrawals will be taxed at your marginal rate (including Medicare levy) less a 30% offset.