There no denying with Australia’s current property prices, saving for your first home deposit is an absolute grind. But what if you could save an extra $5,850 without making the budget any tighter… Sounds like the dream right?
The First home super saver (FHSS) scheme was introduced by the Australian Government in the Federal Budget 2017–18. FHSS allows first home buyers to use their superannuation to help save for their first house deposit.
You are eligible to use the saving scheme if you’re a first home buyer and intend to live in the property for at least the first six months within the first 12 months you own it.
How to save in your super?
There’s a couple of different ways that you can save for your first home deposit inside your super. Some are more tax efficient than others.
- Salary sacrifice – Salary sacrificing is where you choose to have some of your before-tax income paid into your super account by your employer. Not all employers offer this so make sure you check with your pay roll officer.
- Non-concessional contributions – This is where you make an after-tax contribution into your super using money from your regular bank account.
- Concessional contributions – These are contributed after-tax just like non-concessional contributions, the difference being you will receive the tax benefit back at tax time.
Know your limits?
First home buyers can contribute up to $15,000.00 per financial year for an individual and $30,000.00 per couple. The maximum amount that can be deposited into your super account across all years is $30,000.00 per individual and $60,000.00 per couple.
Total yearly concessional contributions must remain under the $25,000.00 per financial year. This also include what your employers pays into your super. Its important you don’t go over this cap as large tax penalties can apply.
How is the FHSS going to help you save?
Using the FHSS can help you save for your first home quicker due to the tax benefits of making concessional contributions. Regular income can be taxed any between 32-45%, where saving for your first home using concessional contribution via the FHSS, you’re only taxed at 15%.
Now not only do you get tax concessions while contributing, any capital gains or income you receive while your money is being saved in your super, also receives the same tax concessions.
In short, the FHSS can lower the amount of tax you pay and increase your savings for your house deposit!
Withdrawing out your super
To make a withdrawal under the scheme, you need to make an application to the Australian Taxation Office (ATO), and you are only allowed one FHSS withdrawal.
There are some super contributions that won’t qualify and cannot be withdrawn under the FHSS. Any Superannuation Guarantee contributions (from your employer) and any spouse contributions cant be withdrawn for your first home. So only the extra contributions you put towards your first home deposit count.
You can only request a release of the FHSS funds once. Within 12 months of the funds being released, you must sign a contract for a home (or the construction of a home). If you don’t, you must return your saving to your super and wont be able access it until you retire. Or keep your savings and be taxed an extra 20%.
You must apply for and receive a FHSS determination from the ATO before signing a contract for your first home. It can also take some time for the funds to be released from your super fund. The ATO says it can take up to 25 business days for the funds to be released.
How could it work for you?
It works like this. If you and your partner both earn $80,000 a year and decide to contribute $15,000 to super to save for your first home deposit. You would pay $2,250 in tax on that $15,000 in super compared to $5,175 you would have to pay otherwise — a yearly extra saving of $5,850 between you.