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The first home super saver scheme (FHSSS): a handy guide for homebuyers

The First Home Super Saver Scheme is a valuable initiative to help first time buyers overcome the challenges of entering the property market.

Purchasing a home is a significant financial milestone, but the ever increasing property prices make it challenging for first time buyers in Australia to enter the market.

To help ease this burden, the Australian government created the FHSSS. The FHSSS is an initiative aimed at helping first time buyers save for their first property purchase. It enables eligible individuals to make voluntary contributions into their super fund, which can later be withdrawn for the purpose of financing their first home deposit.

One of the main benefits of the scheme, which became operational from 1 July 2017, is it allows aspiring homeowners to save money for their first property within their super fund, taking advantage of tax concessions and potentially accelerating their path to home ownership.

In this guide, we will outline the details of the FHSSS, including how it works, how to participate in it and the benefits it offers.

Qualifying for the First Home Super Saver Scheme

To participate in the FHSSS, you must meet certain eligibility requirements:

Be at least 18 years old.
Never have owned property in Australia (including an investment property, commercial property or land).
Have not previously released FHSSS funds.
Occupy the property you buy as soon as practicable and for at least 6 months within the first 12 months you own it once it’s practical to move in.

Contributions under FHSSS

Under the scheme, you can make voluntary contributions to your super fund specifically for the purpose of purchasing your first home. These contributions fall into two categories:

Concessional contributions – these are before tax contributions made through salary sacrificing or employer contributions. The maximum concessional contribution allowed per financial year is $27,500.
Non-concessional contributions – these are after tax contributions made from your personal savings. The total non-concessional contribution allowed is $110,000.

Accessing the savings

Once you have made voluntary contributions, you can apply to release these funds along with associated earnings for purchasing your first home. The released amount is subject to the following limits:

Maximum of $15,000 of voluntary contributions made in a financial year.
Maximum of $50,000 in total across all years.

Tax benefits

The primary advantage of the FHSSS lies in the tax concessions it offers. Voluntary super contributions under the scheme are taxed at a concessional rate of 15% within your super fund, which is generally lower than most peoples’ marginal tax rate (the rate you pay on your income).

Additionally, when you withdraw the funds to buy your first home, they are taxed at your marginal tax rate, but you receive a 30% tax offset, effectively reducing the tax burden.

Steps to utilise the FHSSS

There are quite a few stages involved in the process of participating in the scheme and accessing the funds when the time comes to buy your home, but by following these steps, the process will be fairly straightforward:

Check eligibility – Before diving into the scheme, ensure that you meet all the eligibility criteria outlined earlier.
Determine savings goal – Assess how much you need to save for your first home purchase and how long it might take you to reach that goal. This will help you plan your contributions accordingly.
Super contribution strategy – Create a super contribution strategy that combines before and after-tax super contributions to maximise your savings. Keep in mind the annual contribution limits to avoid exceeding them.
Inform your super fund – Notify your super fund about your intention to utilise the FHSSS. They will provide you with the necessary information and forms to make eligible contributions.
Make voluntary contributions – Begin making voluntary contributions to your super fund, ensuring they are designated as FHSSS contributions. Regularly monitor your progress towards your savings goal.
Apply for release – Once you are ready to purchase your first home, apply to the Australian Taxation Office (ATO) to release your FHSSS funds. The ATO will assess your eligibility and process your request.
Use the savings – Upon approval, you will receive the released funds and earnings into your bank account. These funds can now be used to purchase or construct your first home.

Benefits and considerations

The FHSSS offers several benefits for aspiring homeowners, including:

Tax savings – The scheme provides significant tax benefits, allowing you to save money faster than with a regular savings account.
Accelerated savings – By contributing through your super, you can take advantage of compound interest and potentially accumulate a larger deposit for your home.
Flexible contributions – You can adjust your contributions as per your financial situation and take advantage of bonus contributions from employers if available.
Joint applications – If you are purchasing a property with your partner, both of you can use the FHSSS to maximise your savings.

Despite its advantages, there are some considerations to bear in mind:

Early release penalty – If you decide not to purchase a property after releasing your FHSSS funds, you may face a tax penalty, which can offset some of the scheme’s benefits.
Impact on retirement savings – Withdrawing funds from your super may reduce your retirement savings. Ensure that you are comfortable with the tradeoff between home ownership and retirement savings.
Property market fluctuations – The real estate market is subject to fluctuations and the value of your potential home may decrease over time.

Summary

The FHSSS is a valuable initiative to help first time buyers overcome the challenges of entering the property market.

By taking advantage of the tax concessions and the savings opportunities it offers, eligible applicants can accelerate their path to home ownership. However, it’s essential to consider the long-term impact on your retirement savings and understand the eligibility criteria and withdrawal process before committing to the scheme.

If you meet the eligibility criteria and plan wisely, the FHSSS can be a powerful tool to help make your dream of home ownership a reality.

Source: MLC