You may have heard of the First Home Super Saver (FHSS) Scheme, a government run initiative designed to help first-home buyers leverage their super to save a house deposit. Though first introduced in the 2017-18 Federal Budget, the FHSS Scheme has been in the spotlight since the announcement that the minimum releasable amount is increasing to $50,000 as of 1 July 2021.
Government initiatives targeted at first home buyers often offer substantial benefits to those saving for a home, however they can sometimes be tricky to wrap your head around, so let’s go over everything you need to know about the FHSS Scheme!
What is the FHSS Scheme?
The scheme allows first-home buyers over 18 to make voluntary super contributions which can later be withdrawn and used as a home deposit. Up to $15,000 of contributions can be made each financial year, and when it comes time to buy or build a home you can withdraw up to $50,000 of these funds (previously $30,000).
These deposits can be made by either:
- Asking your employer to salary sacrifice some of your before-tax income into your superannuation (in addition to the mandatory contribution)
- Making an after-tax contribution into your superannuation from your own bank account
What are the benefits?
Saving for a deposit in your superannuation can spare you a considerable amount of tax in comparison to a traditional savings account and making voluntary contributions to superannuation can help lower your taxable income, ultimately keeping more money in your pocket come tax time.
There is an added bonus to this method, you can also withdraw the interest earnings from your voluntary contributions under the scheme. Exactly how much are these earnings? This is calculated based on a fixed ‘deemed rate’ so that you don’t miss out if your super isn’t performing.
Currently at 3.04% per annum, this deemed rate earns you an extra $387.60 if you contribute the maximum $15,000 each financial year!1
What happens when I want to withdraw my deposit?
If you want to participate in the FHSS Scheme, it’s important to have an understanding of the timeline for releasing the funds. As of 1 July 2021, participants can withdraw $50,000 (plus the interest earned) of their voluntary contributions to be used as a first home deposit.
The ATO suggest that you start the process of withdrawing these funds when you start applying for a home loan. This will help give ample time to complete the process and receive the necessary approvals.
All you need to do is apply for a FHSS determination via your MyGov account, which will let you know exactly how much money is available for release. Once that is done, you can request the release of the money into your bank account. It’s important to remember you can’t make multiple releases over time, you can only do this once.
The actual release of funds can take between 15 to 25 days, and you have 12 months to sign a contract to buy or build your first home. However, if you don’t quite make it in 12 months, the ATO will grant you an automatic 12-month extension. After this time, you must return the funds to your superannuation if they haven’t been used for a home deposit or pay 20% tax on the amount released.
- The FHSS Scheme allows first-home buyers to save for their home deposit within their super account, with contributions of up to $15,000 per year
- Participants in the FHSS Scheme can withdraw a total of $50,000 (plus interest earned under the ‘deemed rate’) to use towards their home deposit
- Withdrawing these funds can take up to 25 days in most cases, and can only be done once
- Once withdrawn, first-home buyers have up to 24 months total (12 months + an automatic 12-month extension) to sign a contract to buy or build their first home
1 Retrieved from ABC (www.abc.net.au/) on 19 July 2021
This blog post is for general information purposes only and is not intended as financial or professional advice. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product or other professional advice. You should seek your own independent financial, legal and taxation advice before making any decision about any action in relation to the material in this article. Railways Credit Union Limited trading as MOVE Bank ABN 91 087 651 090. AFSL/ Australian Credit License number 234 536 | ABN 91 087 651.