The First Home Super Saver Scheme has been given a boost as part of this year’s Federal Budget. Under the scheme, you can save money for your first home inside your super fund. This is done through making voluntary contributions to your fund.
At the moment, the maximum you can access through the scheme is $30,000. However, this will be increased to $50,000. Here’s a deep dive into how the scheme works.
In this article:
- What is the FHSS Scheme?
- How does the FHSS Scheme work?
- How much can I save with the FHSS Scheme?
- What the benefits of the FHSS Scheme?
- Is the FHSS Scheme worth it?
- Who is eligible for the FHSS Scheme?
- What type of properties can I buy with the FHSS Scheme?
- How do I withdraw my super from the FHSS Scheme?
- Other ways for first home buyers to save
What is the First Home Super Saver (FHSS) Scheme?
The FHSS Scheme allows you to make voluntary contributions into your super to put towards a home deposit. This money (plus the associated earnings) can then be withdrawn to help purchase your first home. You can’t withdraw super guarantee contributions made by your employer or spouse contributions under the scheme.
How does the FHSS Scheme work?
You can make voluntary concessional (before-tax) contributions, such as through salary sacrificing, or you can make voluntary non-concessional (after-tax) contributions, such as making contributions from your take-home pay. Under the scheme, you can make voluntary contributions up to $15,000 per financial year. This is subject to your normal super contribution caps.
How much can I save with the FHSS Scheme?
The most you can withdraw through the scheme is currently $30,000 (plus earnings). Couples are allowed to pool their savings together, so could potentially release $60,000 (plus earnings). The government said it will increase the maximum amount you can withdraw to $50,000. This change is expected to occur on 1 July, 2022.
As part of this, the Australian Taxation Office (ATO) says you can withdraw 100% of your eligible after-tax contributions and 85% of your eligible before-tax contributions.
The amount also includes earnings on your contributions. The ATO says the earnings are calculated using a ‘deemed’ rate of return and not the actual rate of return your super fund delivers. The deemed rate is based on the ATO’s shortfall interest charge (SIC) rate, which is currently 3.01% as of April–June 2021.
What are the benefits of the FHSS Scheme?
The main benefit of the FHSS Scheme is potential tax savings. By saving within your super fund, you will be able to take advantage of the favourable tax treatment that applies with super savings.
How are my savings taxed in the FHSS Scheme?
Voluntary concessional contributions are typically taxed at 15% in your super fund, the ATO says. Voluntary non-concessional contributions are not taxed in your super fund.
This is compared to investments outside of super, which will be taxed at your marginal tax rate (so this could be up to 45%, depending on your income). By making before-tax contributions, you’ll have more money left after tax to invest in your super.
Eligible concessional contributions and associated earnings are also taxed when they are withdrawn from your super. The ATO says it will typically withhold your marginal tax rate (including the Medicare levy) less a 30% tax offset. For example, if you earned $90,000 per year, you would be taxed at a marginal rate of 32.5% plus the 2% Medicare Levy, less the 30% tax offset. This means you would pay an extra 4.5% in withdrawal tax. Eligible non-concessional contributions are not subject to additional tax.
Is the FHSS Scheme worth it?
The Australian Government says the FHSS Scheme can boost your savings by at least 30%, compared to saving in a standard deposit account.
Canstar has taken a look at how much you could save with the FHSS Scheme versus a savings account. In this example, we compare salary sacrificing $10,000 a year into the FHSS Scheme with depositing the equivalent after-tax amount into a savings account. We have assumed the maximum release amount has increased to $50,000. The marginal tax rate is based on the average adult full-time earnings of $89,003, per the ABS.
Source: www.canstar.com.au – 12/05/2020. Deposit for FHSS Scheme based on monthly salary sacrifice (pre-tax) contributions equivalent to $10,000 per year up to the caps, less SG contributions tax of 15%. FHSS Scheme maximum release amount includes associated earnings calculated on the eligible contributions using a deemed rate of return of 3.01%, per the Shortfall Interest Charge rate from April to June 2021, and is taxed at the marginal tax rate plus Medicare Levy less a 30% offset (4.5%). Bonus savings deposit based on equal monthly deposits at the start of each month equivalent to $10,000 per year of pre-tax income, assuming a marginal tax rate of 32.5%. Top bonus rate of 1.35% is based on accounts in Canstar’s database available for a balance of $10,000. The marginal income tax rate is based on the average adult full-time ordinary time earnings of $89,003, per the ABS November 2020 Average Weekly Earnings. For comparison purposes, the savings account adheres to the same contribution caps as the FHSS Scheme.
As you can see, you could potentially save more under the scheme than you might otherwise by putting money aside into a savings account. However, it’s important to keep the maximum release amount in mind and any contribution caps.
Under the FHSS Scheme, you can make voluntary contributions of up to $15,000 per year. However, this must be within the existing contributions caps (currently $25,000 per year for concessional contributions and set to increase to $27,500 for all individuals from 1 July, 2021). This means if you have a high income and therefore a high level of superannuation guarantee contributions paid by your employee, you will have less scope to make voluntary concessional contributions under the scheme. As a result, it could also take you longer to boost your deposit using the scheme.
Who is eligible for the FHSS Scheme?
To be eligible for the FHSS Scheme you must:
- Be at least 18 years old
- Have never owned property in Australia, including investment properties and vacant land (unless you’ve experienced financial hardship)
- Not previously requested for your super to be released under the FHSS Scheme
- Live in or intend to live in the premises you are buying as soon as practicable
- Intend to live in the property for at least six of the first 12 months you own it, after it is practical to move in.
What type of properties can I buy with the FHSS Scheme?
You must sign a contract to buy or construct a home in Australia if you withdraw funds from the FHSS Scheme. If you buy vacant land to build a home on, you must enter into a contract to construct a home to meet the FHSS Scheme requirements.
There are certain types of property that you cannot buy, such as a houseboat or motor home.
If you’re currently considering a home loan, the comparison table below displays some of the variable rate home loans on our database with links to lenders’ websites that are available for first home buyers. This table is sorted by Star Rating (highest to lowest), followed by comparison rate (lowest-highest). Products shown are principal and interest home loans available for a loan amount of $350K in NSW with an LVR of 80% of the property value.
Before committing to a particular home loan product, check upfront with your lender and read the applicable loan documentation to confirm whether the terms of the loan meet your needs and repayment capacity. Use Canstar’s home loan selector to view a wider range of home loan products.
*Comparison rate based on loan amount of $150,000 and a term of 25 years. Read the Comparison Rate Warning
How do I withdraw my super from the FHSS Scheme?
Once you are ready to withdraw your FHSS Scheme savings, you will need to apply to the ATO to determine how much you can withdraw and then have it released.
After you make your request, the ATO will issue a release authority to your super fund. Your super fund will then release the money to the ATO, who will deduct the appropriate amount of tax. According to the ATO, it usually takes between 15 to 25 business days (or about three to five weeks) for your super fund to release your money and for it to pay the money to you.
Once your savings have been released, the ATO says you need to sign a contract to purchase or construct a home within 12 months from the day you requested the release. If you don’t, you may be required to re-contribute the amount withdrawn back into your super or keep the withdrawn amount but pay a 20% FHSS Scheme tax. Alternatively, an extension may be granted that gives you a further 12 months.
Compare superannuation with Canstar
If you’re comparing Superannuation funds, the comparison table below displays some of the products currently available on Canstar’s database for Australians aged 30-39 with a balance of up to $55,000, sorted by Star Rating (highest to lowest), followed by company name (alphabetical). Use Canstar’s superannuation comparison selector to view a wider range of super funds.
Fee, performance and asset allocation information shown in the table above have been determined according to the investment profile in the Canstar Superannuation Star Ratings methodology that matches the age group specified above.
Other ways for first home buyers to save
There are various schemes, incentives and offers available to help Australians buy their first home. In addition to the FHSS Scheme, you may like to find out more about:
- The First Home Loan Deposit Scheme – low-deposit loans available each year for low- and middle-income Australians who’ve saved up as little as a 5% deposit
- First Home Owners Grants and concessions – what’s on offer, state-by-state
- Family Home Guarantee – single parents could soon get a home loan with a 2% deposit
You can also read about:
- Lender’s mortgage insurance – where can borrowers find a discount?
- Mortgage deals and sign up incentives for first home buyers
- Genuine savings: what is and isn’t included
Main image source: TierneyMJ/Shutterstock.com