Tax Return:: A Guide to the First Home Super Saver (FHSS) Scheme

Hello, this is your tax accountant, P&C Tax Professionals.

Buying a home can be an exciting and daunting experience at the same time especially if you’re a first-time home buyer. The good news is that the Australian Government has introduced the First Home Super Saver (FHSS) scheme, which is designed to help you save money for your first home by using your superannuation fund. The scheme allows eligible individuals to make voluntary contributions to their super fund, which can later be withdrawn to purchase their first home. In this blog post, we will take a closer look at the FHSS scheme, how it works, who’s eligible, the types of super contributions you are able to make through this scheme, and the limits on the amount of super you are able to contribute and withdraw later on.

<How does the FHSS scheme work?>

The First Home Super Saver (FHSS) scheme allows eligible individuals to save for their first home deposit within their superannuation fund, potentially taking advantage of tax benefits. To participate, individuals can make voluntary contributions to their super account, which can be withdrawn later to put towards their first home deposit.

Let’s go through a simple example to further consolidate your understanding of the concept:

Imagine you have an annual income of $70,000 and wish to allocate $15,000 (pre-tax) toward your first home deposit. If you choose to pay tax on this amount at the regular tax rate and then deposit it into a standard savings account with your bank, you will end up paying approximately $4,875 in tax ($15,000 x 32.5%).

Now compare that with this: if you decide to deposit the $15,000 into your superannuation account instead under the FHSS scheme, the amount will be taxed at a rate of only 15%. This implies that you will only pay approximately $2,250 ($15,000 x 15%) in taxes, which is a significant reduction. Therefore, by opting for the FHSS scheme, you can save a significant amount of money for your first home deposit that would have otherwise been paid in taxes.

<Eligibility criteria for the FHSS scheme>

To be eligible to apply for an FHSS determination or release funds under the FHSS scheme:

> You need to be 18 years of age or older (although you can commence saving for the scheme before reaching 18 years of age)

> Unless you are facing financial hardship, it is imperative that you have not previously owned any property in Australia, including land, investment or commercial property

> Have not already tried using this scheme to release and access your super

> Intend to reside in the property for at least 6 of the first 12 months of owning it

- You need to have purchased either a property or vacant land in Australia (mobile homes such as caravans, RV motorhomes, houseboats, and tiny houses do not qualify under this scheme)

<The types of super contributions you need to make>

You have the option to make either type of contribution, or a combination of both:

> Salary sacrifice contributions: These are pre-tax contributions that are made under an agreement between the employer and the employee, where the employee decides to give up a portion of their salary or wages and have them contributed to their superannuation fund instead. It is recommended that you consult with your employer to determine whether you are eligible to make this type of contribution.

> Personal voluntary super contributions: You can make personal voluntary super contributions either by directly contributing to your super fund or through after-tax payments made by your employer. To make these contributions, you should get in touch with your super fund to find out how to do this or consult with your employer to arrange for after-tax contributions to be made directly from your after-tax wage.

You are permitted to make your contributions in lump sums or through smaller, regular contributions.

<How much can I contribute and how much can I withdraw?>

An individual is allowed to make annual super contributions of up to $15,000, with a maximum limit of $50,000 in total. If the individual(s) purchasing the property together with you are also eligible, each person can also contribute up to $15,000 per year to their super fund, up to a total of $50,000 per person. Therefore, a couple can potentially contribute a total of $100,000 to their super under the FHSS scheme.

However, it is important to keep in mind that exceeding your contribution cap may result in additional taxes being incurred.

The amount of money you can withdraw from your super account is determined by the type of contributions you make, for example, you can withdraw up to:

> 85% of eligible salary sacrifice contributions (concessional contributions)

> 85% of eligible personal voluntary super contributions which you have claimed a tax deduction for (concessional contributions)

> 100% of eligible personal voluntary super contributions you have not claimed a tax deduction for (non-concessional contributions)

However, contributions made by your employer or spouse, including Superannuation Guarantee (SG) contributions or spouse contributions, cannot be included.

The First Home Super Saver (FHSS) scheme can be a beneficial way for Australians to save for their first home deposit. By making contributions to a separate savings account within their superannuation account, individuals can take advantage of tax benefits and potentially save a substantial amount of money towards getting their first home. However, it is important to carefully consider the eligibility criteria, contribution limits, and withdrawal rules before deciding to participate in the scheme. If you have any further questions or enquiries, please do not hesitate to reach out to us through our official Facebook Page (P&C Tax Professionals – Australia) or via email (pnctax@naver.com).

Thank you and bye for now!