We all know how difficult it can be for first home buyers to save a large enough deposit to buy their first home. This is especially true if they’re paying rent and running a household with all its numerous expenses.
Thankfully, there’s now a way that first home buyers can save faster and make some tax savings at the same time.
Introducing The First Home Super Saver Scheme
In the 2017 budget, the federal government announced a new home saving scheme called the First Home Super Saver Scheme, or FHSSS for short, to take effect from the 1st of July 2017.
From the 1st of July 2018 eligible first home buyers can now withdraw voluntary super contributions made after the 1st of July 2017 to count towards their home deposit. Bear in mind though that this does not include the compulsory super contributions made by your employer under the Super Guarantee.
Voluntary contributions can consist of:
- Concessional personal contributions. These are the contributions that you have elected to make from your wages in agreement with your employer. In accordance with your agreement, your employer deposits these into your super account before tax is taken out from your regular income.By doing this you save on the amount of tax that you have to pay and increase your super savings at the same time. Under the ATO guidelines an individual can make up to $25,000 in concessional super contributions including the employer super guarantee contributions.To explain this further, if your employer contributes $15,000 to your super in a 12 month period as part of the SG, then you can elect to add another $10,000 for that year without having to pay tax on this contribution.These type of contributions are also sometimes called salary sacrifice contributions or pre-tax contributions.
- Non-concessional personal contributions. These are contributions that you make to your super on your own after you have received your wages. They are commonly called after-tax contributions. As an added incentive for people to add more savings to their super, the government will make a co-contribution of up to $500 per year as long as you earn under $51,813 per annum.With the new FHSSS, you can now withdraw these contributions after July 1 2018 to add to the deposit you will need for purchasing your first home. You can withdraw up to $15,000 per yearly contributions up to a total of $30,000. And the good news is that this withdrawal will only be taxed at 15%.To explain further, if you made $12,000 in personal contributions for the 2017/2018 financial year and $20,000 in personal contributions in the 2018/2019 financial year, then you can withdraw $27,000 after July 2019 to add to your home deposit after the ATO has deducted the 15% tax ($4050).This consists of the total $12,000 contributed in the first year and $15,000 of the total contributed in the second year.
Who Can Take Part In The FHSSS?
As with any type of first home buyers scheme, there are eligibility criteria which must be met. To qualify for the scheme you need to meet the following eligibility criteria:
- You must not have owned a home in Australia previously.
- You must be 18 years of age or older.
- You have not had FHSSS funds released previously. In other words, this super fund withdrawal is a once off only.
- You intend to live in the property you purchase with these funds as soon as you possibly can.
- You intend to live in the property for at least 6 months of the first 12 months that you own it.
Also you cannot use the funds to purchase any of the following:
- A property which is not able to be occupied by you
- A motor home
- A houseboat
- Vacant land
Eligibility Exceptions And Other Benefits
If you have previously owned a home or other property in Australia, you may still be able to apply for the FHSSS. You will need to make an application to the Commissioner of Taxation. This applies to cases where you may have suffered financial hardship. The grounds for financial hardship have not been set down yet but should be made available prior to the 1st of July 2018.
An extra benefit of the FHSSS is that it is assessed on an individual basis. Therefore, if you’re in a couple and both have your own super contributions, then each of you can apply for the FHSSS individually. This means that potentially you could withdraw up to $60,000 to put toward your first home.
You could also opt to purchase a home with your siblings or a group of close friends. This means each of you can withdraw the eligible funds from your super to put toward the purchase of the home. Even if one of you has previously owned property in Australia, the other parties can still apply for the FHSSS to purchase the home jointly.
How To Apply To Have Your Funds Released
When you’re ready to access your FHSSS funds, you need to apply to the Commissioner of Taxation who will determine how much you are eligible to withdraw. You’ll find an approved form, which you must use, on the ATO website which will be available after the 1st of July 2018.
Once you’ve completed the application, the ATO will tell you how much you can withdraw plus the tax that will need to be withheld. You can choose to withdraw the total available amount or choose a lesser amount. Remember though that you can only apply for your funds to be released once.
Once your request has been processed, which will take around 12 business days, the ATO will deduct the appropriate amount of tax and then send the funds to you.
What Happens After You Receive The Funds?
Once you’ve received your funds from the ATO, you have up to 12 months to purchase your first home. If you are not able to do this for any reason, you can apply for an extension of up to another 12 months.
You can also recontribute the funds back into your super account if you’ve changed your mind or have some other reason not to purchase a property.
Either way, you need to inform the ATO once you have signed a purchase contract or if you decided to recontribute the funds.
As you can see, using your super to purchase your first home faster is now possible with the new FHSSS scheme. It’s very simple to understand and has the added benefits of saving on tax and growing your savings faster by utilising your super’s investment strategies.