How to use your super fund to save for your first home
by Verve Super
Saving for your first home can be tough. But it hasn’t always been this difficult.
In the 1980s, more than 60% of 25-34 year olds owned a home. But 2016, this number dropped to 45%. It turns out it’s not all about brunch, in fact, it has a lot more to do with who your parents are and the policies that have led to greater benefits for landlords rather than first home buyers.
However, there is one policy that was introduced in 2017 to help first home buyers save, it’s called the First Home Super Saver (FHSS) Scheme and it involves using your superannuation fund as a vehicle to save for a deposit for your first home.
What is the First Home Super Saver (FHSS) Scheme?
If you are a first home buyer you are able to withdraw a portion of any personal superannuation contributions that have been made into your super account from 1 July 2017 onwards, along with associated investment earnings, and use the funds for a deposit on your first home. An individual can withdraw a maximum of $50,000 to put towards purchasing their first home.
For Australians earning over $37,000 per annum, there may be tax advantages to saving for your first home by making personal contributions to your super. For example, a pre-tax contribution, such as a contribution made through a salary sacrifice arrangement with an employer, is taxed at 15% which is lower than the marginal tax rate that typically apply to wages.Withdrawals from super which are being used to purchase a first home are taxed at their marginal rate, less a 30% offset
This means you get to take advantage of the tax benefits of superannuation contributions to help you save for your first home. When the policy was announced, the Government boosted that under the FHSS Scheme first home buyers would be able to “accelerate their savings by at least 30%”. So how does the FHSS scheme work?
Am I eligible?
In order to access the FHSS Scheme:
a) You must be a first home buyer and both of the following must apply:
You either live in the premises you are buying, or intend to do so as soon as practicable; and
You intend to live in the property for at least six months within the first 12 months you own it, after it is practical to move in.
b) You must have never held a freehold interest in real property, a long-term lease of land in Australia or a company title interest in land in Australia (unless the ATO determine you have suffered Financial Hardship);
c) You cannot have previously requested a release of an amount under the FHSS scheme; and
d) You must be over the age of 18 when you request a release under the FHSS scheme. However, you can start making super contributions at any age.
What if my partner has already accessed the scheme?
Your eligibility is assessed individually. This means that if your spouse does not meet the eligibility requirements and is purchasing the property with you, it will not prevent you from applying for the FHSS scheme.
How does the First Home Saver Scheme work?
Start saving your super
Begin by making voluntary contributions into your super account. You can make these contributions by salary sacrificing your pre-tax income or by making after-tax contributions and claiming tax back on those contributions when you submit your tax return for that year. Annual caps apply to both of these types of contributions. We’ve explained more about these here.
Apply for release
When you are ready to apply for release of your super through the FHSS scheme, you must apply to the Australian Tax Office, via myGov, for a FHSS determination and a FHSS release.
The FHSS determination will tell you the maximum amount that can be released to you under the FHSS scheme. It’s calculated with reference to the amount of voluntary contributions that have been made to your account within the relevant time period. You can request a determination on more than one occasion.
Once you have received your FHSS determination, you can decide if you are ready to apply for an FHSS release. Be aware that you can only apply for an FHSS release once, so you should only take this step if:
- You have made all of the voluntary FHSS contributions you want to make;
- Your FHSS determination is correct; and
- You have signed, or are ready to sign, a contract to purchase or construct your first home.
Once the release payment has been made, you have up to 12 months from the date you requested the release to sign a contract to purchase or construct a residential premises located in Australia.
If you do not sign a contract to purchase or construct a home within 12 months from the date you requested a release, you can apply for an extension of 12 months (max 24 months) or you can recontribute the funds back into your super account. If you otherwise decide to keep the released amount you will be subject to FHSS tax. This is a flat tax equal to 20% of your assessable FHSS released amounts.
It’s important to keep track of your voluntary contributions
It is up to you to keep track of the personal contributions you make to your super account, and to provide this information to the ATO. The ATO will decide if the contributions are eligible for use under the FHSS scheme and what your maximum FHSS release amount is, depending on investment earnings and taxes. This is not up to your super fund to decide. The ATO then advises your super fund on the amount that can be released to you from your superannuation account.
The ATO will check if the contributions you have listed are eligible by checking if it matches the contributions reported by your super fund. You may be required to provide evidence of your contributions prior to us releasing your FHSS amounts to you. More on this via the ATO website.
You can only request a withdrawal
You can only make one request to release under the FHSS scheme, if your request is cancelled for any reason, including because you provided inaccurate information regarding the personal contributions you have made, you will not be able to apply again in the future.
For more information on the FHSS Scheme visit the ATO website or speak to an accountant or financial advisor.