As part of the 2017/18 budget, the Government approved legislation for the First Home Super Saver Scheme (FHSSS). This scheme provides young people the opportunity to start saving for their first home. This is done, in theory, by providing eligible people the ability to save money within the superannuation environment, reducing their overall tax liability in order to save more, quicker. In practice, however, there are some practical issues associated with the scheme that could potentially undermine the actual benefit.
What is the FHSSS?
Simply, you make voluntary concessional (pre-tax) or non-concessional (after-tax) contributions into super to help save for your first home.
What are the rules?
For starters, the maximum contributions that can be made within the scheme are $15,000 per year, or $30,000 in total, however the typical superannuation rules apply. This means that concessional contributions are still taxed at 15% so, in the event of withdrawal, you can only draw 85% of your contributions, or $12,750 per year ($25,500 in total). Additionally, the standard concessional contribution cap of $25,000 applies which includes SG contributions. In order to make the maximum contributions, the individual must be earning $52,630 p.a., if they are receiving standard SG contributions.
In addition to this, they are eligible to draw a portion of the investment returns generated by the FHSSS contributions. However, the eligible returns are not the actual returns generated by the investments but are deemed by the ATO. Whilst the deeming rate is subject to change, at introduction of the FHSSS the rate used was 4.78%. Additionally the returns on withdrawal will then be subject to the individual’s marginal tax rate, less a 30% offset. If we were to assume that an individual earning $50,000 were to save $15,000 per year for two years, this means that the maximum withdrawal they could receive under the FHSSS would be $27,311 ($25,500 in your contributions plus $1,811 in earnings).
The FHSSS also provides the ability to make non-concessional contributions. As these contributions are typically tax free, the benefit from doing this is solely derived due to the tax treatment of investment returns. However, the actual benefit from doing so is largely removed due to the deeming of returns.
How are the funds released?
When withdrawing the funds there are further restrictions such as:
– If you are purchasing your home with someone who is not first home buyer, you will be unable to access your FHSSS contributions;
– If you do withdraw the funds, you will only have up to 12 months to purchase a new home. If you fail to do so:
- You must re-contribute the funds back into superannuation, which you then cannot access until retirement, or
- Be subject to a flat tax of 20%
In spite of all these restrictions, ultimately the FHSSS does provide the ability for first home buyers to save funds more quickly than they would be able to personally. However, the true benefit of this scheme is not the actual savings in tax provided, but rather the way it can encourage individuals to change their behaviours around their spending. In particular they learn how to save, and the long term benefits of doing so. This can empower people to take control of their situation and live the life they want.
If you would like more information on the FHSSS to determine if it’s appropriate for you of someone you know, please don’t hesitate to contact us.
This document contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.