First Home Super Saver Scheme explained
Superannuation | 23/01/2018 |
5 min read
The First Home Super Saver Scheme (FHSSS) is officially up and running. First announced during the 2017-18 federal budget, it’s designed to help first home owners save for a deposit, and works in conjunction with your existing superannuation fund.
But how does it work? And what are the benefits? We’ve outlined the details below.
What is it?
The FHSSS allows you to make voluntary (before tax) contributions to your super fund. You can withdraw these contributions at a later date (alongside any earnings) to help finance your home purchase. You can access up to $15,000 in any given year, and a total of $30,000 across multiple years.
Note that the maximum you can contribute for future withdrawal is $30,000. That means couples can access a total of $60,000.
How does it help first home owners?
If your contribution is made as a pre-tax salary sacrifice, the super fund will levy a 15% tax rate. In many cases this is considerably lower than people’s marginal tax rates (which average around 32%).
In others words; the money that flows into your superannuation fund is taxed at a lower rate than your salary. That leaves you with more money which you can later access and put towards your home loan or deposit.
Do I qualify for the scheme?
To take advantage of the scheme you need to meet the following criteria
• Have not previously owned property in Australia (this includes investment and commercial property)
• Intend to live in the premises you are buying (and live there for at least 6 months during the first 12 months)
In some limited circumstances the above rules have exemptions. Additional info is available on the ATO website.
How do I access the money?
The scheme includes any additional contributions you have made since July 1 2017. Withdrawals can be accessed from 1 July 2018. To receive the funds you need to apply to the Commissioner of Taxation for a FHSS determination and a release of your funds. A form will be available on the ATO website in the coming months. It can take up to 12 days to process any requests.
Do you have an example scenario?
Sure, let’s try this. Tracy and Alex want to buy a home together. To keeps things nice and simple let’s say they each earn $100,000 per year and are taxed at 37%. In addition to their compulsory super contributions they each make $3000 in additional super contributions.
These $3000 contributions are made as a pre-tax salary sacrifice. So the money is only taxed at 15%, rather than the 37% tax it would incur if it was part of their standard income. We’re simplifying the numbers here, but based on those two tax rates, each person could potentially save $650 in tax.
Meanwhile, that same $3000 will earn you a 'deemed rate' defined by the ATO as the 90-day bank bill rate plus 3%.
Assuming the 90-day bank bill rate is 2%, your 'deemed earnings'would be 5%. That’s $150 per person, or $1,600 per annum for the couple in savings, e.g. $650 saved + 5% earnings x 2.
$1,600 may not change Tracy and Alex’s life, but it’s an additional $1,600 towards a first home deposit that they previously didn’t have.
You can learn more about the First Home Super Saver Scheme on the ATO’s website. Click here.
This information is provided for general information only. It does not take into account your personal objectives, financial situation or needs and should therefore not be taken as personal advice. You should consider whether it is appropriate for you before acting on it and, if necessary, you should seek professional financial advice. Issued by Equipsuper Pty Ltd ABN 64 006 964 049 AFSL 246383. MySuper Authorisation Numbers 33813823017672 and 33813823017518 (‘Equip’, ‘the Fund’ and ‘the Equip Rio Tinto Fund’).