There’s no doubt that buying in today’s property market is tough, but the government is aiming to help first-time home buyers with the tax-efficient savings vehicle that is the superannuation.
The First Home Ownership Savings Program (FHSSS) was introduced in the 2017-18 Federal Budget to improve housing affordability for first-time home buyers. It was part of a series of measures designed to put downward pressure on rising housing costs.
“For those trying to save to buy their first home, we will support them by providing a tax reduction on their first home deposit savings,” then-Treasurer Scott Morrison said during the announced the measure in his budget speech.
The government has estimated that by using the scheme, early savers could potentially increase their savings by at least 30% compared to a standard deposit account.
How does the first home super saver program work?
The Super Epargne Logement (FHSSS) allows first-time buyers to contribute voluntarily – before tax or after tax – in their retirement up to a certain amount which they can later access for their housing deposit.
How much can you contribute?
You can contribute up to $15,000 per year and up to $50,000 in total. But you also must not exceed the annual contribution limits ($27,500 per year for concessional contributions) which include pension guarantee amounts paid by your employer.
Who can access it ?
You must be 18 or older to withdraw amounts from the plan, but you can make eligible contributions before that date.
You must also never have owned property before (and this is any type of property, including investment property, vacant land, commercial property, land lease, or corporate title to a field) and not having used the program before.
However, because it is assessed on an individual basis, couples, siblings or friends can each use their own FHSSS contributions to purchase the same property if they are first-time buyers. A couple could therefore each access their $50,000 savings for a combined deposit of $100,000.
How is the First Home Super Saver program taxed?
The scheme’s tax treatment is particularly advantageous in the case of preferential super contributions – which are deducted from pre-tax earnings – as the amount will not be taxed at personal income tax rates, but rather tax 15% on retirement. rate in the fund (if you earn more than $250,000, it is 30%).
Non-concessional, i.e. after-tax, contributions are not taxed twice.
When can I withdraw my savings?
If you are over 18, you can request an FHSSS determination from the Australian Taxation Office (ATO) at any time. Of course, you will need to have made voluntary contributions to your retirement pension before this date to be able to access it in the first place.
You must have an FHSSS determination before signing a contract to purchase property.
To request the determination, log in to ATO online services via myGov, navigate to the super tab and from the drop-down menu select Manage, then First home saver. The ATO will tell you your maximum FHSSS amount when you request the determination.
Once you have received the determination, you can again request through myGov a release of the amount specified in your FHSSS determination. And once your savings amounts are released, you have up to 12 months from the date you applied for the FHSSS savings release to sign a contract to buy or build a house.
What are the advantages ?
- The FHSSS allows you to save money for your first home within the advantageous tax framework of retirement.
- The tax treatment is particularly advantageous if saved via voluntary pre-tax super contributions, and it is estimated that it could increase potential savings for a first-time home deposit by 30%.
- The FHSSS can be used by two people, which means that a couple can combine their savings amounts for one deposit.
- FHSSS monies earn interest on superannuation shortfall which is 5.31% for the October to December 2022 quarter, a much better rate than what you could get in an account savings or even a term deposit.
What are the disadvantages ?
- There have been many incarnations of the First Home Super Saving Scheme and it is possible that it will disappear in the future, and you may not be able to withdraw savings under the scheme. (That’s probably unlikely given how politically unpopular it would be.)
- The $50,000 limit, which rose from $30,000 on July 1, 2022, may not get you very far in terms of down payment on a house with the average price of a home in Australia in the June quarter amounting to $921,500, or a 20% down payment on the average home would be $184,300.
Is the First Home Super Saver Program Worth It?
If you’re saving for a first home, then probably yes. Be aware that this may not cover the full cost of the deposit. One of the criticisms of the program is that the withdrawal amount is too low and does not reflect the price of property in Australia.
Can I use my super for a house deposit in 2022?
What kind of property can I buy with the money?
What if I don’t end up buying a house?