If you’re someone who’s been saving for a first home deposit, then there’s one scheme you should know about. It’s called the First Home Super Saver Scheme (FHSSS).
The point of the scheme is to help people of all ages get into their first homes sooner. It was introduced by the Australian Government in the Federal Budget 2017–18 to reduce pressure on housing affordability. Here’s how it works.
Solving the housing affordability problem
If you open a paper or watch the news on any given day, there’s a good chance there will be a story about housing affordability, or the lack of it. With the median house price in Sydney above $1.1 million and Melbourne not far behind, it’s easy to see why. For first home buyers, it’s especially tough.
That’s because banks require between 5% and 20% of the value of a home as a deposit before they will lend the rest of the amount to a borrower. If you wanted to buy the average house in Sydney with a 20% deposit, that would mean having about $220,000 sitting in your savings account.
This is simply not realistic for most people. Even a 5% deposit of around $55,000 is not easy to save while still paying rent and living costs.
The First Home Super Saver Scheme aims to address this by helping those saving for a deposit do it a little faster.
How the First Home Super Saver Scheme works
The FHSSS involves saving using your super account. Your employer pays 9.5% of your ordinary salary into your super account already. This is for your retirement, and you can’t access that before you retire for good in your 60s. Let’s call this “Account A”.
The FHSSS creates another savings account in your superannuation specifically for your home deposit savings. Let’s call this “Account B”.
In Account A your employer puts money in for your retirement. In Account B, you put your own money in for your first home deposit.
You pay less tax on your savings if you put them in Account B than if you just use an ordinary savings account.
First Home Super Saver Scheme Example
Say you are earning $60,000. You want to put $10,000 of that salary (pre-tax) towards your home deposit. If you pay tax on that as normal and then put it in a normal bank savings account, you will pay around $3,250 of the $10,000 in tax.
Now, if you put that $10,000 in the FHSSS Account B instead, you will be taxed at just 15%. This means you will only pay around $1,500 in tax. That’s a substantial amount of extra money towards your first home instead of towards your tax bill.
When you withdraw your money, you will get taxed at your marginal tax rate of 32.5% minus an offset of 30%. In effect, you’ll also pay 2.5% tax when you withdraw your money. This loss will be cancelled out somewhat by the fact that Account B earns above 3% interest while you have your money in it which, again, is better than most regular bank accounts.
Who can use the FHSSS?
The FHSSS is open to anyone who has never owned a property before. If you’ve owned or co-owned investment properties, not just properties that you may have lived in you are excluded from the scheme. You’re also excluded if you’ve bought vacant land previously, even if there’s no home on it. You can also only use the scheme once.
To get your contributions into Account B out when you want to buy, you have to be over 18. And the funds must be used to buy a home, and cannot be used for other dwellings like caravans, motor homes or houseboats, or vacant land. If you do want to buy vacant land, then you must be able to enter the contract to build a home on it within 12 months of receiving your savings.
Other rules you need to know
To stay eligible for the First Home Super Save Scheme and not end up with a nasty tax bill after receiving your money, you must actually live in your first home for at least six months of the first 12 months you own it. This is similar to the conditions for the first home buyer’s grants offered by some states.
You can also contribute a maximum of $15,000 in a single year. In addition, you can only contribute a maximum of $30,000 in total across all years to your FHSSS savings account.
Admin matters
The administrative side of this scheme is a little bit complicated. When you want to start saving using a FHSSS account, you need to have a conversation with your employer about changing your pre-tax superannuation contributions to your super fund. Most employers can do this fairly easily.
When you are ready to buy, you apply to have your funds released by the ATO, which administers the scheme. You will also fill out your tax return a little differently in that year.
Finally, it would be a very good idea to keep all of the documents relating to this in one place. When you go to apply for a loan, the bank will likely want proof of the amount in your FHSSS account when it comes to calculating how much they are willing to lend you.
It might seem a little complicated but for the purposes of getting into your first home faster by using money that you would have otherwise paid in tax, the First Home Super Saver Scheme is hard to beat.
