We’re all about helping our community along the path to owning a home, and one of the first steps to achieve this is to find ways to accelerate your home deposit. To help grow your deposit even faster, there is a Government scheme which may help you; the first home super saver scheme (FHSS).
This scheme is run by the ATO (Australian Tax Office) and is designed to let you use your super account to help build your first home deposit. Before we explain how it works, here are some initial criteria you must meet to be eligible. The FHSS applies to those:
- Buying an existing home
- Buying a new home
- Buying a home and land package
To qualify for the FHSS:
- You must have never owned property in Australia – this includes an investment property, vacant land, commercial property, a lease of land in Australia, or a company title interest in land in Australia.
- You must not have previously requested an FHSS release in relation to the scheme.
- At least one of the first home buyers must be an Australian citizen or permanent resident.
How does it work?
Via the FHSS, you can voluntarily deposit up to $15,000 per year into your super over and above your employer’s super contribution. You can elect to early withdraw up to $30,000 in one go under the scheme, and from July 1 2021, you can early withdraw up to $50,000 in one go, which can be put towards your first home purchase. It is important to note that these voluntary contribution amounts must be over and above what your employer contributes to your super on your behalf, which are not eligible for early withdrawal under this scheme.
This means if you are in a financial position to have enough funds to support your lifestyle and expenses, you can enter a salary sacrifice (pre-tax) arrangement with your employer to make voluntary super contributions or by making (after tax) voluntary personal super contributions into your super account.
What are the benefits of doing this?
The primary benefit of this scheme lies in the tax benefit from the level you pay income tax on your marginal rate of tax, versus the 15% tax rate paid on your super withdrawal.
Let’s say you are paying a marginal rate of tax in your highest tax bracket of 32.5%, and you had sufficient funds to make voluntary salary sacrifices to your super, over and above what your employer contributes on your behalf. This means for every dollar you contribute to super, you avoid paying a rate of 32.5% tax, and at the time you withdraw it under this scheme, you are only taxed at a rate of 15%, meaning you would have saved 17.5% tax for every dollar you have managed to allocate under this scheme, versus what you would have paid in income tax.
If you managed to make $1,000 worth of voluntary super contributions, and had a 32.5% tax rate, you would have $175 in tax savings benefits under the FHSS. This tax saving would be larger for extra voluntary contributions up to the maximum of $15,000 in a year, and would be a bigger implied tax saving if your marginal tax rate was 37% or 45%.
Super carries investment risks and fees
It is important to note that by making voluntary contributions to your super, you are investing this money into the assets in your super portfolio, which in turn carries investment risk and fees. Please check to see if this scheme makes sense for your personal situation.
Who stands to benefit from this scheme?
While this scheme is available to anyone meeting the eligibility criteria, it is of most benefit to a couple or friends/relatives seeking to make a joint purchase and who are both working, as both persons are able to make advantage of the tax savings via voluntary contributions. But it is important to note that if either person has owned a home, that makes a shared purchase ineligible to make early super withdrawal for either person under the FHSS.
Other information regarding the FHSS:
- In most cases, it will take between 15 and 25 business days for your fund to release your money and for us to pay it to you.
- You can’t include contributions in your FHSS determination that were made by anyone else on your behalf. According to the ATO, If you include any of these amounts in your FHSS determination, your request will be cancelled, and you will not be eligible to apply under FHSS in the future.
- You can sign your contract to purchase or construct your home either:
- from the date you make a valid request to release your FHSS amounts
- before making a valid request to release your FHSS amounts.
- If you sign your contract to purchase or construct your home before making a valid request to release FHSS amounts, you’ll need to:
- have an FHSS determination before you sign
- make a valid release request under the FHSS within 14 days of entering the contract.
Please note this is not a Raiz incentive program, so we encourage you to do further research into this if you think you may participate in the FHSS.
This is just one of many schemes available to first home buyers. If you would like to find out more about programs designed to help you, or loans you may be eligible for from one of over 50 loan providers Raiz Home Ownership works with, register you interest.
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