The great Australian dream of home ownership is alive and well. But with property prices at an all time high, it can seem like a tall mountain to climb. How The First Home Super Saver Scheme (FHSS) Can Work For You.
In support of first homeowners, a new scheme was launched in the May 2017 budget to give new owners a boost in order to save some of the money needed for a home deposit. As of July 2017, the First Home Super Saver Scheme (FHSS) allows first home buyers to deposit straight into their super accounts, giving them a tax cut. The other assurity is money is securely invested until it’s needed, with no temptation to withdraw for that annual holiday!
As with all Government incentives, there are eligibility requirements that must be met.
1. To be eligible for the FHSS Scheme you must:
- Have never owned a property in Australia – including land, investment property, or commercial property.
- Be at least 18 years of age to apply for the release of funds.
- Have not previously requested the ATO to issue an FHSS release authority
2. There’s a limit on how much you can contribute to the FHSS.
You can only contribute $15,000 per year up to a maximum of $30,000 under the Scheme. These contributions must also fall within the existing contribution caps being:
- Concessional (before tax) contributions cap: $25,000
- Non-concessional (after-tax) contributions cap: $100,000
3. FHSS limit
Whilst each person has an FHSS limit of $30,000, a couple can pool their contributions up to $60,000. That makes for a healthy first home deposit pool of funds. Both parties must meet all eligibility criteria.
4. Contributions can be made before tax or after-tax to your super account.
This means you can salary sacrifice your contributions however, as the contribution is made before tax earnings, the super fund will levy a 15% contribution tax on your super. For most people, this is lower than their taxable income rate which makes for a tax saving.
5. There’s a second tax payment required on the withdrawal of your savings from the FHSS Scheme.
Both the FHSS amount and the withholding tax need to be declared in the tax return of the financial year in which you requested the release of the funds. When the ATO (Australian Tax Office) receives your released amounts, they will withhold tax that will be calculated at your expected marginal rate, including Medicare levy, less a 30% offset. The amount of tax withheld is calculated on the assessable FHSS released amounts and will help meet your end-of-year liabilities. Once you lodge your tax return for the year you applied for the release, the tax withheld is recalculated.
6. Your withdrawals from the FHSS Scheme are not calculated in income tests for common social security entitlements.
For example, the withdrawals will not affect family tax benefit payments or entitlements. It can be used however for income tax, Centrelink and child support debts, or even study loans. Some of your releases could be used to offset these debts.
7. You can buy a property with someone else who has previously owned a property as the assessment is based on each individual application.
For example, if you marry and that person has already purchased a property in their name, you’re still entitled to apply for the property under both names, with your FHSS contribution being utilised.
8. The taxman is watching!????
When you withdraw your funds, you have 12 months in which to buy a home or recontribute it back into your super account. A penalty of 20% FHSS tax will apply if these terms are not met. You can apply for a 12-month extension giving you 24 months to make a purchase if you haven’t found a suitable property. It’s important to note that contributing the savings back into your super will forfeit the FHSS Scheme and the funds will remain in your account until you retire.
As with any financial decision, it’s always best to seek professional advice as each person’s circumstance is different. Whilst this scheme might be beneficial for some people, it might not be suitable for others.
Please contact me, I can help you find the right loan to support you in your first property purchase and investment property in the future.