First Home Super Saver Scheme (FHSS Scheme) – how much could you save?

If you’re saving for your first home, you may be able to use your super to help with your deposit.

Under the First Home Super Saver Scheme you can save money for your first home inside your super fund and potentially save on tax. This is done through making voluntary contributions to your fund.

The maximum you can withdraw through the scheme is currently $50,000, plus the associated earnings. Here’s a deep dive into how the scheme works.

What is the First Home Super Saver Scheme?

The First Home Super Saver 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 This money (plus the associated earnings) can then be withdrawn to help purchase your first home.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 First Home Super Saver 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 (currently $27,500 per year for concessional contributions).

How much can I save with the First Home Super Saver Scheme?

The most you can withdraw through the scheme is currently $50,000 (plus earnings). Couples are allowed to pool their savings together, so could potentially release $100,000 (plus earnings) to purchase the same property.

As part of this, the Australian Taxation Office (ATO) says you can withdraw 85% of your eligible before-tax contributions (such as salary sacrificing amounts) and 100% of your after-tax contributions (such as take-home pay amounts).

You will also receive the earnings for those contributions. Your earnings are calculated using a ‘deemed’ rate of return, not the actual rate your super fund delivers. The deemed rate is based on the ATO’s shortfall interest charge (SIC) rate and is currently 4% for the July to September 2022 quarter.

What are the benefits of the First Home Super Saver Scheme?

The main benefit of the First Home Super Saver Scheme is the potential tax savings. By saving within your super fund, you will be able to take advantage of the favourable tax treatment that applies to super savings.

How are my savings taxed in the First Home Super Saver Scheme?

Voluntary concessional contributions (such as salary sacrificed amounts) 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). So by making before-tax contributions, you’ll have more money left after tax to invest.

Your concessional contributions (and the associated earnings) will be taxed when you withdraw them from your super. The ATO says it will typically withhold your marginal tax rate (including the Medicare levy) less a 30% tax offset. So, 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 First Home Super Saver Scheme worth it?

According to the government, the First Home Super Saver Scheme can boost most people’s savings by around 30% compared to saving with a standard savings account.

Canstar has taken a look at how much you could save with the scheme versus a savings account.

As a hypothetical example, we’ve compared salary sacrificing $10,000 a year into the scheme with depositing the equivalent after-tax amount into a savings account. We’ve looked at the potential savings after one year, three years and five years.

The marginal tax rate is based on the average adult full-time earnings of $92,030 a year, based on the Australian Bureau of Statistics’s latest Average Weekly Earnings figures.

FHSS Scheme vs savings account

Source: www.canstar.com.au - 19/08/2022. 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 4.00%, per the Shortfall Interest Charge rate from July to September 2022, 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 an effective tax rate of 22.1% plus Medicare Levy of 2%. Top bonus rate of 3.10% is based on accounts on 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 $92,030, per the ABS May 2022 Average Weekly Earnings. For comparison purposes the savings account adheres to the same contribution caps as the FHSSS.

As you can see, you could potentially save more under the scheme than you might by putting the money into a savings account. But in this example, the extra savings are only about 7.9% more after one year, 9.7% after three years and 11.5% after five years.

High income earners

It’s also worth keeping in mind your contribution caps. Under the scheme, you can make voluntary contributions of up to $15,000 per year. But this must be within the concessional contributions cap of $27,500.

That means if you have a high income and therefore a high level of super guarantee contributions paid by your employee, you will have less scope to make voluntary concessional contributions. So it could also take you longer to boost your deposit using the scheme.

Who is eligible for the First Home Super Saver Scheme?

To be eligible for the First Home Super Saver 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 scheme

What home can I buy with the First Home Super Saver Scheme?

You must buy a residential premises. This includes vacant land if you are planning to build. It can’t be an investment property or other types of homes such as houseboats or motor homes, the ATO says. You also need to occupy the premises for at least six months in the year after purchasing or constructing it.

How do I withdraw my super from the First Home Super Saver Scheme?

To withdraw your super, you need to request a determination from the ATO via myGov. The ATO will let you know the maximum amount you can release under the scheme. After you’ve received this, you can then apply for a release of your super. You can only do this once.

The ATO will then issue a release authority to your super fund. The money will go through the ATO, who will deduct the appropriate amount of tax, and then pay it to you. In most cases, the ATO says it takes between 15 and 25 business days (or about three to five weeks) for you to receive the money.

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, the ATO says it can grant you a further 12 month extension. You can also re-contribute the amount withdrawn back into your super fund or keep the released amount but pay a 20% tax.

Other ways for first home buyers to save

If you are preparing to buy your first home, you might like to find out more about:

• First Home Owners Grants and concessions – what’s on offer depends on your state or territory.
• First Home Guarantee – eligible homebuyers can purchase a home with a deposit of as little as 5% and avoid lenders mortgage insurance (LMI).
• Family Home Guarantee – eligible single parents can purchase a home with a deposit of as little as 2% and avoid LMI.