The First Home Super Saver (FHSS) scheme is an initiative aimed at alleviating the financial burden of purchasing a first home. By leveraging the superannuation system, the scheme provides a structured and tax-effective way for first-time home buyers to save for a deposit. This article delves into the intricacies of the FHSS scheme, highlighting its benefits, eligibility criteria and operational mechanics.
Understanding the FHSS scheme
The FHSS scheme allows individuals to make voluntary contributions to their superannuation fund, which can later be withdrawn to fund the purchase of their first home. These contributions can be made through salary sacrifice, concessional contributions, or non-concessional contributions. The scheme is designed to foster a disciplined savings habit while offering tax advantages that may enhance the savings potential for prospective home buyers.
Benefits of the FHSS scheme
One of the primary benefits of the FHSS scheme is the potential reduction in personal tax liability. By making voluntary concessional contributions, individuals can lower their taxable income, thereby reducing the amount of tax payable. Additionally, the scheme encourages regular contributions, promoting a consistent savings pattern that can expedite the accumulation of a home deposit.
Eligibility criteria
To qualify for the FHSS scheme, applicants must meet specific criteria:
- Age and ownership status: Applicants must be 18 years or older and must not have previously owned property in Australia. This includes investment properties, commercial properties and certain land leases. Your name must be on the title of the property you buy.
- Property requirements: The property purchased must be capable of being occupied as a residence and cannot be a houseboat, motor home, or vacant land unless there are plans to build a residence.
- Residency requirement: The buyer must intend to live in the property as soon as practicable after purchase and for at least six months within the first 12 months of ownership.
- Previous FHSS usage: Applicants must not have previously accessed funds under the FHSS scheme.
Importantly, eligibility is assessed on an individual basis, meaning that a person can still qualify even if their spouse does not meet the criteria.
How the FHSS scheme works
The FHSS scheme commenced on 1 July 2017. To participate, individuals must make eligible voluntary contributions to their superannuation fund, capped at $15,000 per financial year. As of 1 July 2022, the maximum amount that can be released is $50,000, plus associated earnings.
Eligible contributions include concessional and non-concessional contributions but exclude mandated employer Super Guarantee Contributions (SGC), co-contributions and several other specified types. Once ready to purchase a home, individuals can apply to have their contributions, along with associated earnings, released from their super fund.
Application process and considerations
Before applying for a release, individuals must ensure they have made all desired contributions, as only one release request is permitted. The first step is to request a FHSS determination from the Australian Taxation Office (ATO), which outlines the maximum release amount. If the determination is accurate, a release authority can be requested, prompting the super fund to release the funds to the ATO, which then disburses the net amount to the applicant.
You have 12 months from the date you make a valid release request to the ATO to sign a contract to purchase or construct your home. Once you have signed a contract for an eligible home, you must notify the ATO within 90 days of the contract date.
Tax implications and usage requirements
Released concessional contributions and associated earnings are taxed at the individual's marginal tax rate, less a 30% offset. The funds must be used to purchase residential property in Australia and if not used, they must be recontributed to the super fund as non-concessional contributions to avoid penalties.
You should be aware, if you decide you no longer wish to purchase a property, any contributions that you made towards the FHSS scheme will remain within your superannuation account and will not be able to be withdrawn until you meet an alternate condition of release.
Leveraging the FHSS scheme for first-time homeowners
In conclusion, the FHSS scheme offers a viable pathway for first-time home buyers to save for a deposit through their superannuation fund. By understanding the scheme's benefits, eligibility criteria and operational mechanics, individuals can make informed decisions to facilitate their journey towards home ownership. Full details on the FHSS scheme can be found here.
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