How does it work?
The FHSS allows you to withdraw eligible voluntary contributions made into your super account (from 1 July 2017). You can contribute up to $15,000 per year, and $30,000 in total under the Scheme. You can then withdraw eligible contributions to use specifically for a first-home deposit. You can only make a withdrawal from 1 July 2018.
You’ll also be able to access associated earnings (calculated by the ATO based on a set rate2) on eligible contributions that you withdraw. Depending on market conditions, your super savings may earn more than they would in a regular savings account. You’re also likely to save on tax.
Eligible contributions include:
- Salary sacrifice contributions
- Personal contributions, and
- Voluntary employer contributions (does not include mandatory employer contributions such as Super Guarantee)
Contributions must be made within the existing concessional and non-concessional caps1. The type of voluntary contributions you make into super will affect the maximum release amount. You can withdraw 100 per cent of your eligible non-concessional (after-tax) contributions and 85 per cent of eligible concessional (pre-tax) contributions.
Who is eligible?
To be eligible for the FHSS Scheme, you need to be able to answer yes to the following:
- You’ve never owned any property in Australia – this includes an investment property, commercial property, a lease of land in Australia, or a company title interest in land in Australia
- You’re not using FHSS amounts to purchase the following type of property: any premises not capable of being occupied as a residence, a houseboat, a motor home, or vacant land
- You’ve not previously requested a FHSS release authority
- You’re aged 18 years or older (at the time of withdrawal)
Eligibility is assessed on an individual basis, which means if you’re a couple or looking to purchase a property with a sibling or a friend you can pool your funds as long as you meet the requirements. For more information on eligibility, visit the ATO’s page on the FHSS Scheme.
Withdrawing your funds
From 1 July 2018, you can apply to withdraw eligible contributions, along with any associated earnings, for the purchase (or construction) of your first home.
Earnings are calculated by the ATO based on a formula, rather than actual earnings on these amounts in your fund2.
You can apply for the release of voluntary contributions up to a maximum of $15,000 from any one financial year and $30,000 in total across all years.
Certain components of the total amount released to you will be subject to tax. Generally this will include any concessional contributions released, plus total associated earnings. These assessable components will be taxed at:
- Your marginal tax rate less a 30% offset, or
- 17% if the Commissioner is unable to estimate your expected marginal rate.
Your summary will show the amount of tax withheld for you to include in your tax return for the year you request the release.
As well as meeting the terms above, you must occupy (or intend to occupy) the property as soon as it is practical to do so, plus live in the property for at least six of the first 12 months you own it (from when it is practical to move in).
In most cases, you need to purchase the property within 12 months of having the funds released to you.
If you don’t use the funds for the above purpose, you will either need to contribute the funds back to super as a non-concessional contribution, or pay additional tax.
It is important to understand that, if after you make eligible voluntary contributions, your intentions change, and you no longer intend to purchase a home, you won’t be able to access the funds you contributed until you meet a ‘condition of release’. Based on current law, this is unlikely to occur until you reach age 65, or retire after reaching your preservation age (see ATO website for more information).
Case study: Michelle and Nick
Michelle earns $60,000 a year and wants to buy her first home. Using salary sacrifice, she annually directs $10,000 of pre-tax income into her superannuation account, increasing her balance by $8,500 after the contributions tax has been paid by her fund. After three years, she is able to withdraw $25,758 of contributions and deemed earnings on those contributions. Her withdrawal is taxed at her marginal rate (including Medicare levy) less a 30 per cent offset.
If Michelle had instead deposited these amounts (net of PAYG tax) into a savings account in her name earning 2%, she would have had approximately $6,239 less to use as a deposit at the end of the same three year period3.
Things to check with your super fund
Make sure your nominated super fund or funds will release the money – some super funds, including defined benefit and constitutionally protected funds, may not. You should also check whether you’ll have to pay any fees or charges.
If you think the FHSS scheme could work for you, an adviser can help you make the most of the opportunity. You can call us on 1300 558 863 or make an appointment with a professional financial planner.