It’s the hot topic on every young Australian’s lips: purchasing a property seems like a possibility almost only existent in a far-off fantasy land and many of us have resigned to the notion that we may be living in rental share houses for another decade or two (or three).
So are you looking for some tactics to help that dream home become a reality but can’t accept the idea of sacrificing your smashed avocado brunches? The First Home Super Saver (FHSS) Scheme may be a strategy worth considering.
Can I get it?
Before you get too carried away with the thought of consuming copious amounts of guilt-free avocado, it’s a good idea to check if you’re eligible for the scheme. Make sure you tick the following boxes:
- never owned a property in Australia1
- 18 years and older upon withdrawal of funds
- live or intend to live in the purchased premises as soon as possible (and for a minimum 6 months of the first 12 months of ownership)
- have not previously received a First Home Super Saver payment.
You also must be eligible to make voluntary contributions to your super, which means you must be aged under 65 (or up to 74, if you’re then still gainfully employed).
When you apply for a home loan, your lender may ask to see a history of regular savings (usually for a period of 3-6 months). You should speak with your lender to confirm if they accept FHSS savings as ‘genuine savings’ before opting into the scheme.
How does it work?
Step 1: Contribute
So you’ve confirmed that you’re eligible for the scheme? Great. The next step is to get started on your contributions.
Voluntary contributions to super from 1 July 2017 onwards can effectively be used towards the purchase of your first home. You can make voluntary contributions on a before-tax basis (via salary sacrifice, or by claiming a tax deduction on voluntary contributions you’ve made out of your after-tax income) or on an after-tax basis (by not claiming a tax deduction for voluntary contributions made out of your after-tax income). It’s important to consider the tax treatment for each type:
|Contribution type||Tax applicable within super||Tax applicable upon FHSS payment|
Salary sacrifice or where a tax deduction has been claimed
15% up to the concessional contributions cap
Taxed at individual marginal tax rate with a tax offset of 30%
Where no tax deduction has been claimed
Nil up to the non-concessional contributions cap
Earnings: The amount of earnings that can be released in your FHSS payment will be calculated using a deemed rate of return (the 90-day Bank Bill rate plus three percentage points).
Key things to note:
- further taxes apply once contributions exceed their respective cap*
- voluntary contributions do not include Superannuation Guarantee, Award, Employer Additional, Government or Spouse contributions.
- a maximum of $15,000 per year (per individual) can be saved through your super towards the purchase of your first home and a limit of $30,000 (per individual) across all years applies. For an illustration, see http://www.budget.gov.au/estimator/.
Step 2: Withdraw
Ready to start looking for a cosy cottage with the white picket fence? Then it’s time to submit your application for an FHSS payment.
From 1 July 2018, you can withdraw the net voluntary contributions you’ve made on or after 1 July 2017 (up to a maximum of $30,000 per individual; therefore, up to $60,000 for an eligible couple), plus earnings based on the deemed interest rate. In order to access the funds, you’ll need to lodge a request for an FHSS determination and then request a release with the ATO*. Once the funds have been released you’ll have 12 months* to get your first mortgage signed sealed and delivered. Then get your mortar and pestle ready – it’s housewarming time and, naturally, guacamole is on the menu!
Pros and Cons
The FHSS Scheme may not be suited to your circumstances and needs. Before making any financial decisions it’s important to carefully consider all the pros and cons. For more information, contact your superannuation fund, financial planner or refer to NGS Super’s FHSS Scheme Information Sheet.
|Potential tax concessions||Money can only be accessed for the purchase of your first home|
|Saving discipline – savings can generally only be used to subsidise the purchase of your first home or to fund your retirement||Super fund fees apply (generally including an exit fee upon withdrawal)|
|Savings amounts are protected. The amount that can be withdrawn is not impacted by markets falling (provided you have enough money in your super fund to make a withdrawal)||Risk of legislative changes|
|Additional administrative work is involved|
|Slower process to access funds|
Contact our dedicated customer service team on 1300 133 177 for all enquiries between 8am and 8pm (AEST/AEDT) Monday to Friday.
You can also contact us if you need more information.
1 If you have previously held property interest, the ATO may determine you are eligible for a FHSS release under financial hardship if you:
- have suffered a financial hardship that resulted in you ceasing to hold any property interest at the time of the hardship; and
- have not held any other property since that time.
Further details can be found in our information sheet First Home Super Saver Scheme.