The First Home Super Saver Scheme (FHSSS) passed parliament in 2017. Many first home buyers find the scheme confusing but it can be used effectively if you get the right advice.
What is the scheme all about?
According to the government, the First Home Super Saver Scheme (FHSSS) will help eligible Australians boost their savings for their first home by allowing them to save part of their deposit inside the lower-taxed environment of the superannuation system.
How much can I contribute each year?
The maximum amount individuals can contribute annually to their super account under the FHSSS is $15,000. All contributions counted towards the scheme must be voluntary contributions, in addition to the super contributions already made by your employer.
The FHSSS also excludes employer contributions made to defined benefit schemes. However, Defined Benefit Division (DBD) members can make additional voluntary or salary sacrifice contributions (through an arrangement with their employer) into their accumulation component, subject to the annual contributions limits detailed below.
Your total super contributions for the year, including the contributions made under the FHSSS, must be within the normal annual limits or caps for concessional (before tax being additional personal contributions or via Salary Sacrifice) or non-concessional (after-tax) super contributions. For the 2021/2022 financial year, the annual contributions caps are:
- Concessional (before tax) contributions cap: $27,500
- Non-concessional (after-tax) contributions cap: $110,000
Note that you may have unused concessional contribution cap space from the 2019FY onwards that could enable you to make the $15k contribution under the FHSSS without exceeding your contribution limit.
How much can I direct to super?
Individuals are currently limited to a maximum of $30,000 in savings under the FHSSS, though this is increasing to $50,000 from 1 July 2022.
The individual-based limits will give couples the chance to save up to $100,000 using the scheme post 1 July 2022.
How do I make additional contributions?
You have two options:
- Logon to your super fund member page and find the BPay details for personal contributions. Ensure you make the contribution well in advance of 30 June so that it can be deducted in the correct financial year. You will then need to complete a Notice of Intent to Claim a Deduction form with help from your adviser and forward this to your super fund. You cannot lodge your tax return to claim the deduction OR release the funds from super until you have your super fund’s reply to this notice.
- Speak to your employer about salary sacrificing from your pay. To maximise the $15k annual limit, you can split this amount over the number of fortnights remaining in any given FY.
Will I pay tax?
Yes. As is currently the case, concessional (pre-tax) super contributions are taxed at 15% p.a. (for income less than $250,000 p.a.) or 30% (for income greater than $250,000 p.a.).
Upon the release of funds, your FHSSS contributions and deemed earnings will be taxed at your marginal rate less a 30% tax offset. For example, if your marginal tax rate is 39% including the Medicare levy, you will pay 9% tax on withdrawn funds.
What’s the potential benefit?
The Federal Government has released an estimator to illustrate the potential dollar benefit of the FHSSS.
As an example, if an individual earning $130,000 p.a. (excluding super guarantee at 10%), makes additional salary sacrifice contributions of $10,000 p.a. to their superannuation fund for 3 years, they will have an estimated $24,979 available for deposit under the First Home Super Saver Scheme. Coupled with the tax benefit derived from making additional deductible contributions, these savings are approximately $6,425 more than had they saved the same amount in a bank account earning 2% p.a. interest.
We highly recommend seeking both tax and financial planning advice relating to the FHSSS given the potential complexities related to your personal circumstances (i.e. HELP Debt, impact on personal cash flow and other long term goals).
Can I use my existing super balance to buy my first home?
No – you cannot drawdown from your current super balance unless you have made additional contributions post 1 July 2017. The FHSSS will only apply to voluntary contributions made after 1 July 2017 and is available to be drawn from 1 July 2018.
What return will I get from my superannuation?
Investment returns on FHSSS contributions will earn a deemed rate of return based on the 90-day bank bills rate (Australia’s benchmark indicator for short term interest rates) plus 3% – approximately 3.10% p.a. as at February 2022.
The deemed rate of return is independent of the investment earnings in your superannuation fund. Therefore, the return the Australian Tax Office (ATO) deems you have earned on FHSSS super contributions may be more or less than what you could have earned outside the super system, or the rate of investment earnings for the balance of your super account.
How do I access the funds?
This is a two-step process which can be completed once the contributions have been received by the fund and any Notices of Intent to Claim a Deduction have been completed.
- Determination to Release: This MUST be done before you sign a purchase contract. Logon to myGov and under the ATO linked service, click on the Super drop down menu then select FHSS. Enter the details of the contributions (amounts and dates) and apply. The ATO will advise you of the amount you can release, you do not need to complete the release at this time but could do so if you need the cash from super to fund your 10% deposit on purchase.
- Release the funds: This is also done through myGov, after you have complete the determination to release. The latest determination will be there for you to take the next step. You can purchase a house with only the determination, but, if successful, you must apply to release the funds within 14 days of the contract date.
What happens if I change my mind and don’t purchase a home?
The ATO will monitor this scheme to ensure money released from super is used to fund the purchase of your first home.
According to the ATO, a 20% tax on your assessable FHSSS amount will be charged if you do not notify them that you have signed a contract to purchase/build a home or have not re-contributed the amount back to super within 12 months. This initial 12 month period can be extended by a further 12 months upon application.
It’s probable that, if you do not meet the purchasing criteria or purchase a home within the timeframe, your savings under the FHSSS may be locked in superannuation until you meet another condition of release – i.e. reach preservation age 65 or alternatively, the 20% FHSSS tax will be payable.
Can I buy a property with someone else?
Yes. FHSSS contributions are assessed individually, even if the money goes towards a house that is purchased with someone (spouse) who has owned a home previously.
Will I need to add additional savings of my own?
It depends on the property you are planning to purchase – the type of property, its location and the deposit required. We recommend discussing your options with a DPM lending specialist, they can use their experience in home lending for medical professionals to assist you.
More questions? Still not clear?
Please contact a DPM Private Wealth Consultant to discuss on 1800 376 376 or enquire for a free no-obligation initial consultation here.
Disclaimer: * The information contained in this site is general and is not intended to serve as advice as your personal circumstances have not been considered. DPM Financial Services Group recommends you obtain personal advice concerning specific matters before making a decision.