First Home Super Saver – A definitive guide

If you’re a potential first home buyer and are looking for more information on how to squeeze every penny, below is a definitive summary of the elements of the First Home Super Saver (‘FHSS’) Scheme.


ELIGIBILITY

The member must:

  • Have never held any freehold interest in land in Australia (including long-term leasehold of 50 years plus), either in their individual capacity or through a controlled foreign company title interest;
  • Be 18 years or older; and
  • Have not previously received any payment under the FHSS Scheme.

CONTRIBUTIONS

Broadly, an eligible contribution is:

  • A concessional or non-concessional contribution that is not a mandated employer contribution. Therefore, an employer’s minimum superannuation guarantee is excluded;
  • It must not result in the member exceeding their concessional and non-concessional contributions cap;
  • It must not exceed the $15,000 FHSS contribution limit in any financial year commencing from 1 July 2017;
  • The maximum amount of contributions eligible to be released under the FHSS Scheme is $30,000.

DETERMINATION AND RELEASE

When the member wishes to withdraw the money accumulated under the scheme, they can request an FHSS Scheme determination from the ATO. The ATO will then provide an estimate of the member’s maximum release amount which includes:

  • Concessional and non-concessional FHSS contributions;
  • Associated earning as calculated by the ATO (currently 4.96% p.a.).

After receiving the estimate, you will then fill in a release request authority form included with the determination. Then the following steps will occur:

  1. The ATO will provide confirmation to both the member and their respective super fund;
  2. The super fund will release the relevant amount to the ATO;
  3. The ATO receives the money and deducts PAYG withholding tax;
  4. The ATO then distributes the net payment to the member;
  5. The member must include the FHSS amount received in their income tax return that FY;
  6. The member is entitled to a 30% non-refundable tax offset of the FHSS amount received in that financial year.

PURCHASE, RECONTRIBUTION and TAX

Within 12 months after the release of the FHSS amount, the member can either:

  • Purchase or construct a residential premises. The member must notify the ATO within 28 days of entering into a contract to purchase or construct a residential premises;
  • Recontribute the amount to super. The recontributed amount will count toward the member’s non-concessional cap, the member cannot claim a deduction. The member is required to inform the ATO if they intend to recontribute;
  • Request another extension from the ATO for up to 12 months, or;
  • Keep the FHSS release amount beyond the relevant period of 12 or 24 months. The member will pay tax of 20% plus applicable levies on the amount released.

TAX BENEFIT

The following scenario should save the member approximately 15% in tax on the amount of concessional contribution toward the FHSS Scheme;

  • The member can claim a tax deduction in their income tax return in the year of the contribution at their marginal tax rate (‘MTR’).
  • The super fund pays tax on the contribution at 15%.
  • The member includes the release amount in their income tax return to be taxed at their marginal tax rate less a 30% tax offset in the year they receive the money.

As stated above, if the original MTR tax deduction for the contribution and the MTR tax payable on the withdrawal net off, there is a 15% advantage between the tax paid inside the super fund and the tax offset received as an individual.

Beware however, as the amount released is included as taxable income in your tax return, if you jump tax brackets by the time you release the money (or as a result of) the benefit of the scheme is reduced.

Please note if you were to contribute non-concessionally and do not claim a tax deduction in your income tax return, this amount forms a part of your tax-free benefit inside super. Consequently, you are not required to report the tax-free component of a withdrawal in your income tax return and therefore this amount would not be subject to tax on the way into super or on the way out.

CURRENT STRATEGIES

The most common strategies I see are the two below:

  • The individual has a deposit already saved and contributes $15,000 to super in June and another $15,000 in July, thereby obtaining a deduction in two separate financial years. Once confirmed they will immediately apply for a release of funds, this maximises their tax benefit and reduces the total time spent without the cash on hand, remembering they have 12 or even possibly 24 months from the date of release to purchase a property.
  • The individual sets up a salary sacrifice arrangement with their employer as a regular savings plan. Usually used by older members of the workforce to top up their super before retirement, younger individuals are now taking advantage of salary sacrificing arrangements knowing that they will be able to withdraw the money from their super when needed.

It should be noted that for couples, both can participate in the FHSS Scheme to purchase their first family home. This means a couple can access up to $60,000 from their super contributions to go toward purchasing their first home.

Individuals who enter into this scheme must be aware that the money must be released to you before entering into a contract. The process to release funds from super can currently take around two months, and so prospective buyers should plan well in advance to have the money available to them when needed.

So, is it worth it? It probably won’t change your life but there is a marginal gain to be made.

See the below government estimator to show a comparison between using the FHSS Scheme and not using the scheme based on your individual circumstances.

www.budget.gov.au/estimator


Should you have any queries in relation to the above please don’t hesitate to contact:

Clint Morgan
Manager – SMSF Specialist Advisor™
T: 03 9810 0754
E: c.morgan@banksgroup.com.au

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