This scheme was announced in the 2017 Federal budget and passed both houses on 7 December 2017. It enables first home buyers to save for a home deposit through the super system.
Individuals will be able to make voluntary superannuation contributions and have them released (subject to limits), along with an amount of associated earnings, for the purpose of purchasing a first home. It will apply to voluntary contributions made from 1 July 2017 but withdrawals will only be available from 1 July 2018.
- Eligible individuals must be:
- 18 or over
- Have never owned property in Australia before
- Have never used the scheme before.
- Voluntary contributions up to a maximum of $15,000 per year with a total of $30,000 possible.
- Both voluntary concessional (before tax) contributions and non-concessional (after tax) contributions can be applied to the scheme. It is important to note that other contributions, including superannuation guarantee and spouse contributions do not qualify.
- From 1 July 2018, amounts can be released from superannuation.
- Individuals will apply to the ATO who will determine the maximum amount that can be released. Superannuation funds will release this amount to the ATO, who will withhold tax and pay the net amount to the individual.
- Individuals will have access to released funds prior to purchasing the property to enable them to fund the deposit. Funds released must be used to purchase a home within 12 months, although they may apply to the ATO for a 12 month extension. The home must be occupied by the individual as soon as practicable and for at least 6 months of the first 12 months.
- If a purchase is not made within the required period the funds can be recontributed back to super or the individual may pay a flat 20% tax on the released amounts (excluding non-concessional contributions)
The advantage of the FHSSS when compared to investing outside superannuation is that the lower up-front tax in superannuation of 15% results in a higher amount available for investment.
For an average wage earner on about $80,000 who salary sacrifices the maximum $15,000 for two years the tax saving is $5,435 and they will have access to $25,292 to fund their deposit.
If they were to make non-concessional contributions rather than salary sacrificing the tax savings are minimal as it is only the earnings that benefit from the lower tax rate.