WARR HUNT

Introduction

Boosting your First Home DepositBy Aaron Viney

Keen to boost your deposit on your first home or know someone saving? Below Aaron Viney outlines the First Home Super Saver (FHSS) scheme, including tips and traps on this strategy.

Boosting your First Home Deposit By Aaron Viney

Real estate investment. House and coins on table.

Keen to boost your deposit on your first home or know someone who is saving?  Below I have outlined the First Home Super Saver (FHSS) scheme which is aimed at assisting Australians boost their savings to purchase their first home, including tips and traps on this strategy.

How does it Work? 

To be eligible to withdraw from superannuation under the FHSS scheme, you must:

  1. not have owned property in Australia before;
  2. be aged 18 years or older; and
  3. have not previously had an amount released from superannuation under this.

Never owned property

It is a requirement that you have not previously owned a property. This includes an interest in any property, not just a property that was treated as a main residence.

If you’re purchasing the property with another person, eligibility is determined individually. For example, you wish to purchase a home with your spouse, but your spouse has previously owned an interest in a property but you have not. Only you are therefore eligible.

Eligible contributions

Contributions that can be withdrawn under the FHSS scheme must be voluntary. Voluntary contributions can be either concessional or non-concessional contributions such as:

  • salary sacrifice;
  • personal contributions where a deduction has been claimed; and
  • non-concessional contributions made from after-tax income and no deduction claimed.

How much can I contribute?

The maximum eligible voluntary contributions that count towards the amount that can be withdrawn are:

  • $15,000 per financial year; and
  • $30,000 in total.

The contributions made in a year must also be within the relevant contribution cap.

These rules are complex so it is important that you get advice to help you understand how the rules will apply to you.

How do I get access to funds?

To have eligible contributions released under the FHSS scheme, you will need to:

  1. Apply to the ATO to determine the maximum amount that you are eligible to withdraw; and
  2. Complete the release authority provided by the ATO.

You’ll need to apply for a FHSSS determination before you sign a contract to purchase or construct your new home. You are only able to make one request for an amount to be withdrawn.

Is there any tax to pay?

Released eligible non-concessional contributions will be received tax-free.

Eligible concessional contributions and associated earnings (including those on non-concessional contributions) withdrawn will be added to your assessable income for that financial year and taxed at your marginal tax rate less a 30% tax offset.

For example, if you are earning $110,000 pa your marginal tax rate will be 32.5%. Therefore, you will pay 2.5% tax on the amount you withdraw.

Use of withdrawn amount

As the scheme is to assist you with the purchase of your first home, the amount withdrawn must be used to enter a contract to purchase or construct your first home within 12 months.

Your first home purchased with this money must be occupied by you. You must live there for at least six of the first 12 months.

If you are not able to enter a contract within the 12 months (or within an ATO-approved extended period) you have two choices:

  1. Re-contribute the amount back to superannuation
  2. Pay the additional FHSS tax – flat rate 20%

Traps

  • Making contributions in excess of these caps may incur significant tax penalties.
  • The amount that can be withdrawn will be determined by the ATO which includes eligible contributions and associated earnings.
  • The actual earnings of your fund may be different.
  • The ATO will request information to determine your eligibility to make the withdrawal. Penalties may apply for making false declarations.
  • The Government may change superannuation legislation in the future.

What are the benefits? (Case Study)

Bob and Jill want to buy their first home and decide to save by using the FHSS Scheme. Assumptions below:

  • Bob earns $90,000 pa and Jill earns $100,000 pa.
  • Both direct the maximum of $15,000 into super before tax via salary sacrifice over the two years.
  • Will purchase a property in 5 years time.
  • Both pay 15% contribution tax.
  • Both receive a 30% offset from their marginal tax rate when withdrawing.
  • 2% pa interest rate on cash

The above shows an overall saving via the FHSS Scheme would be $11,726 more than if they used a standard savings account.

As demonstrated, the FHSS Scheme can be an effective way to boost savings for a home deposit. If anyone you know, be it friends or family, may benefit from this feel free to share this and do not hesitate to contact me for further information on 03 9935 0970.