Using your super to kick start your first home deposit
/Who can use the FHSS scheme?
The First Home Super Saver (FHSS) scheme is available to you if you are over 18 and have never owned an Australian property before. If you have never owned a property before, but you are planning to buy a home jointly with someone who has, you can still use the scheme, even though your joint owner cannot.
Even if you have long owned your own home, the FHSS scheme may present the opportunity to help a family member or loved one achieve their home ownership dream.
The steps of the FHSS scheme
FHSS scheme contributions are made to your super fund. That said, you contact the Australian Tax Office (ATO) to find out how much you can withdraw and to make the withdrawal itself.
The steps to use the FHSS scheme are:
Make voluntary contributions to your super fund.
Request a FHSS determination from the ATO.
Review the determination, including the maximum withdrawal amount available to you.
Request a withdrawal from the ATO.
The ATO will then apply to the superfund to release the amount(s), will withhold tax, and will pay you the balance.
Use the withdrawn amount to help purchase your first home.
Let the ATO know the withdrawn amount was used to purchase your home.
If the withdrawn amount is not used to buy a first home or is not used quickly enough, it must be contributed back into your super fund to avoid paying penalty tax.
Contributions
Only voluntary contributions can be withdrawn under the FHSS scheme. Voluntary contributions include any salary sacrifice contributions made for you by your employer as well as personal contributions you make for yourself (including where you claim them as a tax deduction). They do not include compulsory employer contributions, such as Superannuation Guarantee (SG) contributions.
Any contributions made under the scheme will count towards your superannuation contribution caps. Furthermore, only the first $15,000 of voluntary contributions you make each year count towards the scheme, up to a current lifetime limit of $50,000.
Withdrawals
Withdrawals can be made under the FHSS scheme from July 1, 2018. Before you make a withdrawal, you need to apply to the ATO to find out how much you can withdraw (this is referred to as an FHSS determination). They will tell you your maximum withdrawal amount (including earnings accrued). You then apply to the ATO to make a withdrawal.
Your withdrawal will be split into an amount relating to concessional contributions (such as employer and deductible contributions) plus earnings and another amount relating to non-concessional contributions. The non-concessional portion will be tax-free. The amount relating to concessional contributions and earnings will be taxed at your marginal tax rate less a 30% tax offset.
Using your withdrawal
Once you have made your withdrawal under the scheme, you usually have 12 months to buy or to start construction of, your first home. You must live in your home for at least 6 of the first 12 months.
If you do not use your withdrawal to buy a home, you may pay penalty tax on your withdrawal. You can recontribute an amount back into your super fund within the 12-month period to avoid this penalty tax.
Tax benefit
The tax benefit in the FHSS scheme is provided by allowing pre-tax and tax deductible contributions to your super fund to be used to save for your deposit. These contributions are taxed at a rate of 15% rather than your marginal tax rate, which may be as high as 47% when Medicare levy is included. The 30% offset on the withdrawal works to ensure this saving is not heavily eroded by tax when accessing the saved funds.
The tax saving that can be made will depend upon your marginal tax rate and how much you contribute under the FHSS scheme. Your adviser can help navigate you through the FHSS scheme and work out how much tax you can save.
