Saving for your first home? In a market where owning your home is increasingly out of reach for many, the First Home Super Saver (FHSS) scheme offers some practical hope. Here we look at how it works.
Where super was once locked away until retirement, you can now actively use its tax concessions to save up to $30,000 towards your first home, and then access your savings when you’re ready to buy. But this scheme is not for the faint-hearted, with lots of steps to climb before you get to your new front door.
The FHSS scheme is clearly for first home buyers – those who are buying or constructing their first home in Australia. But those buyers must:
- be 18 years or older;
- have never owned a property in Australia (being a freehold interest in real property, a long-term lease or a company title); and
- only apply for the scheme once.
However, there is provision for owners who have previously lost their property through financial hardship to be considered eligible for the scheme.
The good news is that there is no limit on the number of those eligible to share in the purchase of the same home under the scheme. So, couples, siblings and friends – as long as they meet the FHSS requirements – can pool their FHSS contributions towards the one purchase.
A further caveat is that you either live in the home you’re buying or you intend to do so for at least six months within the first year of ownership.
The FHSS scheme refers only to contributions made since 1 July 2017. The scheme allows you to release up to $15,000 of voluntary contributions you’ve made to your super in any one financial year, and up to $30,000 in contributions in total, plus all the associated earnings, subject to contribution caps.
To be eligible, these contributions:
- are those made by you as the member or by your employer (but do not include compulsory super guarantee contributions – there are other specific exclusions so it is important to check with your adviser); and
- can be made up of concessional and non-concessional contributions, but only 85% of eligible concessional contributions can be released.
Get the sequence right
While you’re house hunting, it’s important to be clear on the FHSS process ahead. Once you’ve saved the final amount and, before signing a contract to purchase your home or applying for the release of your FHSS funds, you must apply to the ATO, and obtain, an FHSS determination. This determination will set out the maximum amount that you can release under the scheme.
Once you receive the determination you can then make a valid request to the ATO to issue an authority to your super fund for the release of an amount up to the maximum in the determination.
Your fund will then pay the released amount to the ATO but this may take about 25 days, so timing can be critical particularly if the funds are needed for the deposit.
If eligible, you can enter into a contract to purchase or construct your home either:
- as soon as you make the request to release the funds (rather than when the funds are released); or
- up to 14 days before the date you make this request.
You have up to 12 months after you’ve requested the release (unless more time is allowed by the ATO) to sign a contract to buy it.
Once you finally do sign your contract, you must notify the ATO within 28 days that you have done so.
All in order
It’s important to note that there’s an ordering rule for release of your super savings. Contributions are counted in the order in which they are made to your fund, from earliest to latest and also non-concessional contributions are counted before concessional contributions.
If you decide not to go ahead with the purchase you must notify the ATO within 12 months of making the release request, and either take advantage of a further 12-month extension or recontribute an eligible amount back into super as a non-concessional contribution. Alternatively, if you fail to comply or decide to hang onto your FHSS released amounts they may be subject to 20% FHSS tax.
Guidance at an important time
If drawing on your super to buy your first home is right for you, take care not to mess with the rules, or you’ll miss out. We know the traps and can provide expert advice to guide you safely to your front door.