With property prices continuing to rise in our major cities, the First Home Super Saver (FHSS) Scheme has emerged as a valuable resource for Australians aiming to enter the property market. Today, I’ll guide you through the mechanics of this scheme and how you can utilise it effectively.
What is the First Home Super Saver Scheme?
Introduced in the 2017-18 Federal Budget, the FHSS Scheme enables eligible Australians to save for their first home within their superannuation fund. The advantage is that you can benefit from the concessional tax treatment of superannuation, potentially accelerating your savings compared to a standard savings account.
How Does It Work?
- Voluntary contributions: You may make voluntary concessional (before-tax) and non-concessional (after-tax) contributions to your superannuation fund under this scheme.
- Contribution limits: You can contribute up to $15,000 per financial year and $50,000 in total under the scheme.
- Withdrawal process: When ready to purchase your first home, you can apply to the Australian Taxation Office (ATO) to release these funds.
Key Benefits of the FHSS Scheme
1. Tax Advantages
Concessional contributions are taxed at 15% within your superannuation fund, which is typically lower than your marginal tax rate. This means a greater portion of your money goes toward your home savings rather than tax payments.
2. Disciplined Saving
Since the funds are secured in your superannuation account, they cannot be accessed for other expenditures, helping you maintain discipline in your savings approach.
3. Potential Investment Returns
Your contributions may benefit from the investment returns generated by your superannuation fund, potentially allowing your savings to grow more rapidly than in a conventional savings account.
Eligibility Criteria
- You must be 18 years or older
- You have never owned property in Australia
- You haven’t previously made an FHSS release request
- You intend to reside in the property as soon as practicable and for at least six months within the first 12 months of ownership
Practical Tips for Using the FHSS Scheme
Start Early
The sooner you begin making voluntary contributions to your superannuation for the FHSS Scheme, the more you can potentially save due to compound returns.
Consider Your Tax Situation
If you’re in a higher income bracket, making concessional contributions could offer significant tax benefits. Consider discussing salary-sacrificing arrangements with your accountant.
Be Aware of Processing Times
It typically takes 15-25 business days for the ATO to process your request to release funds, so incorporate this into your home buying timeline.
Understand the Consequences
If you do not proceed with a home purchase after withdrawing funds, you will need to either recontribute the amount to your superannuation or pay an additional tax.
Common Pitfalls to Avoid
- Not checking your superannuation fund’s fees: Some funds may impose fees for additional contributions or withdrawals, which could reduce your savings.
- Forgetting about the deemed earnings rate: When calculating your eligible withdrawal amount, the ATO uses a deemed rate of return rather than your actual returns.
- Missing the 12-month deadline: After the ATO issues your FHSS determination, you have 12 months to sign a contract to purchase or construct your home.
Conclusion
The First Home Super Saver Scheme is not a complete solution to Australia’s housing affordability challenges, but it is a valuable mechanism that can assist first home buyers. As with any financial strategy, it’s important to consider your individual circumstances and perhaps consult with a financial advisor to determine its suitability for you.
The keys to success with the FHSS Scheme are early commencement, understanding the regulations, and maintaining consistent contributions. With appropriate planning, this scheme could provide the advantage you need to realise your home ownership aspirations.
Have you utilised the FHSS Scheme or are you considering it? Feel free to share your questions or experiences in the comments section below.
Written by Michael Andrew Bankier