Saving for your first home might be a daunting prospect – but the FHSSS is here to help! First home buyers, if eligible, can withdraw up to $30,000 from their super, and use it towards their first home deposit.
On this page:
- What is FHSSS?
- How does it work?
- Advantages and disadvantages
What is it?
Sometimes, the deposit needed to secure one’s first home can cost an arm and a leg. Add to this the fact that the money placed into your superannuation account cannot be withdrawn before retirement, with exception to certain cases, can make superannuation a rather frowned upon investment. The Australian Government’s, ‘First Home Super Saver Scheme’ (FHSSS), introduced in the Federal Budget 2017-18 can be interpreted as a tool developed to simultaneously accommodate for both areas of concern.
Under the FHSSS, a first home buyer is empowered, if eligible, to withdraw voluntary super contributions (includes salary sacrifice contributions, after-tax super contributions and/or tax-deductible super contributions). These withdrawals must then be placed toward the deposit of one’s first home. The scheme allows first home buyers to voluntarily contribute up to $30,000 into their super and withdraw this amount (plus earning, less tax) to buy their first home. Due to the generally beneficial tax treatment available through super, the FHSSS aims to assist first home buyers to meet their level of required deposit much faster, whilst potentially diminishing the overall tax payable.
“For most people, the FHSSS could boost the savings they can put towards a deposit by at least 30 per cent compared with saving through a standard deposit account.”
– First Home Super Saver Key Fact Sheet (PDF)
How does it work?
Before anything can occur, you must be eligible and in compliance with the Australian Taxation Office (ATO) regarding the scheme. Once found eligible, you can have your employer transfer up to $15,000 of your salary into your super account on top of the 9.5% compulsory employer super contributions every year. This means that instead of being taxed at the marginal tax rate that usually applies to your income bracket, all funds transferred and saved through the scheme will only incur a tax rate of 15%.
Before you go all in on your extra super contributions, let’s go through the advantages and disadvantages that come with the use of this particular scheme:
- Couples who are looking to make a deposit into their first home are eligible to participate separately and have the power to funnel their individual contributions into the one home loan deposit.
- As long as your super account is operating as required by law, no new or secondary account is necessary.
- With compounding and tax benefits, individuals who invest their money into this scheme will save more than those who leave their funds in a savings account.
- Depending on the location and size of your intended property, the yearly $30,000 contribution may not be enough. As you will only have 12 months to sign up to purchase or construct a home without incurring an extension fee under the FHSSS, properties which require a high deposit could produce more costs over time.
- The total cost of $259.5 million, for running and implementing the scheme, will be spread across taxpayers over four years.