5 must-knows about the FHSS scheme and how it can work for you
The First Home Super Savers (FHSS) scheme can help young Aussies buy their first home. We're showing you how it can help you get on the property ladder.
Sponsored by Aware Super. Discover why over 1.23 million members trust their retirement savings with Aware Super.
Nowadays, many Aussies are having a tough time getting onto the property ladder.
There's no question that trying to save for a deposit while also juggling everyday expenses can be tricky.
But did you know that contributing to your super could help with the process?
With the First Home Super Saver (FHSS) scheme, you're able to use some of your voluntary super contributions to help you buy a home. So let's take a closer look at some of the must-knows of this scheme
1. What is the FHSS?
The FHSS scheme was implemented by the Federal Government with the aim of making home ownership more accessible to Australians.
It allows eligible Aussies to withdraw voluntary contributions they've made to their super (and any associated earnings calculated by the ATO) to use towards the purchase of their first home.
There are some conditions to the FHSS scheme:
- You can contribute up to $15,000 to your super in a single year.
- You can contribute up to $50,000 across all years for the FHSS scheme.
Given that the ATO currently calculates the associated earnings at around 7%, which is typically higher than a standard savings account, some people might view the FHSS scheme as a faster way to save for (and purchase) their first home.
There can also be tax benefits, too. It's slightly complicated, but bear with us. Essentially, you pay 15% tax on before-tax super contributions. Your marginal tax rate is likely much higher, so the tax saving comes from this gap.
For example, if you're on a 32% marginal tax rate (including Medicare levy), every $1,000 you salary sacrifice into super is taxed at 15% instead of 32%. That's an immediate tax saving of $170 per $1,000.
If you contribute concessional amounts up to the $50,000 cap over several years, 85% of that (after the 15% contributions tax) counts toward the releasable amount for the FHSS scheme.
When you later withdraw under the FHSS scheme, concessional amounts are taxed at your marginal rate minus a 30% offset. So, someone paying 32% effectively pays just 2% on withdrawal, which is lower than the full 32% tax you'd pay on any interest earned in a savings account.
Higher earners can save even more, while lower-income earners see smaller but still meaningful benefits.
🏠Expert tip! Think carefully before opting to use the FHSS scheme. Although it can be a useful way to build your deposit when buying your first home, withdrawing the funds means it won't be invested for your retirement. It may be worth seeking financial advice to decide whether it's right for you.
2. Is everyone (even older Australians) eligible for the FHSS?
Lots of Aussies are eligible for the FHSS, as it's intended to help a broader range of people buy their first home. There's no age cap on applying.
However, there are a number of conditions that need to be met.
- You must be 18 or older when requesting to access your super. However, you're still able to withdraw from the voluntary contributions you made before you turned 18, if relevant.
- You must be a first home buyer. You can't have owned property or land in Australia previously.
- Your name must be on the title of the property you buy.
- You can't have previously requested an early release on your super via the FHSS scheme.
If you meet these criteria and you're looking to buy your first home, the FHSS scheme may help you achieve your goal of buying your first home.
🏠Expert tip! Although the FHSS scheme is designed to help first home buyers enter the market, you could apply for it due to hardship, even if you've previously owned a home. Some circumstances include:
- bankruptcy
- separation from your partner or a relationship breakdown
- losing your job
- illness
- natural disaster
3. How can you withdraw funds?
Once you've determined that you're eligible for the scheme, you'll need to check whether or not your super fund participates in the FHSS scheme.
You then apply for a withdrawal via the ATO, who will inform you how much you're able to withdraw.
This is called a 'determination'. After you've received your determination, you can then request a release via the ATO.
The ATO will then instruct your super fund to pay you the relevant funds.
🏠Housing tip! Aware Super is one Australian fund that does participate in the FHSS scheme. You can read more about it on the Aware Super website.
4. What types of homes are allowed?
Broadly speaking, the FHSS scheme is designed to help people purchase a first home, rather than an investment property.
However, in some circumstances you can use the FHSS scheme for construction on vacant land.
The FHSS scheme can't be used to buy a motorhome or houseboat, despite their increased popularity.
🏠Housing tip! The property you purchase needs to be legally used as a residence. So you can't use it to purchase an office building or similar sort of property.
5. What sort of timeframe is there for using funds?
Anyone who's bought (or tried to buy!) a first home knows that it doesn't always work to an ideal timeline. The good news is, you can save for a home within your super for as many years as you like, until you reach the $50k cap.
When you're ready to buy, you apply to release the funds you've added (plus the associated earnings calculated by the ATO). Then, you have up to 12 months to sign a contract on a property or build a property.
But what if you don't manage to do this within this timeframe?
Well, there are some options:
- You can get an extension for up to 12 months.
- You can place the funds back into your super account, but tax will need to be withheld.
Another option is to keep the funds. But you'll pay a FHSS scheme tax of 20% on the assessable amount that was released to you, minus any tax already withheld.
🏠Housing tip! Keep in mind that the funds you receive will be part of your taxable income in the financial year that you receive them. It's worth checking the ATO website for more information about your tax obligations.
Learn more about super and retirement with Aware Super.
Sponsored by Aware Super. Discover why over 1.23 million members trust their retirement savings with Aware Super.
General advice only. Consider your objectives, financial situation, or needs, which have not been accounted for in this information and read the relevant PDS and TMD at aware.com.au/pds before acting. Issued by Aware Super Pty Ltd (ABN 11 118 202 672, AFSL 293340), trustee of Aware Super (ABN 53 226 460 365).
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