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What is the First Home Super Saver Scheme (FHSSS)?

In the last week, three separate people have mentioned the new-ish First Home Super Saver Scheme (FHSSS) to me. While I had a general idea about it, I took this as a sign that I should investigate further and perform a feat of magic: to make budgetary legislation and tax sound interesting and fun.

So, what is the FHSSS?

The FHSSS was announced in the 2017 budget as a way to help first home buyers save for a house deposit.

First home super saver scheme house depositThe FHSSS means that you (first home buyers) can make voluntary (before tax) contributions via salary sacrifice into your existing superannuation fund. If you can’t salary sacrifice, you can contribute to your fund, then lodge a tax deduction notice.

The most you can voluntarily contribute into the scheme is $15,000 per year, for a total of $30,000 across all years. Couples can combine their forces for a total of $60,000.

Still with me? Let’s keep going.

Why should I do this?

These voluntary contributions are taxed at the low tax rate of 15 percent. This is good news because the lowest tax rate in Australia is currently 19 percent, and it only climbs exponentially from there.

Voluntary contributions towards the scheme have counted from 1 July 2017 and from 1 July 2018 you can withdraw these voluntary contributions, plus the interest earned.

Is there a catch?

A couple, sort of. There is an overarching limit of $25,000 that you can contribute into your super per year, and the super guarantee of 9.5 percent – that your employer pays – is part of that.

So, when you’re adding in your additional contributions, keep this cap in mind. Any contributions you put into your super over the cap are taxed at the top marginal tax rate of 47 percent. Yikes!

The other catch is that you must use this money to buy a house. If you make extra contributions for a few years, then decide that you’re not going to buy a house, the money is pretty much locked away in your super until your retirement. This isn’t necessarily a bad thing, as these contributions will go a long way to maximising your superannuation.

 Am I eligible for this scheme?

The answer is yes, if:

  • You have not previously owned property in Australia (this includes investment and commercial property).
  • You intend to live in the property you are buying for at least 6 months during the first 12 months.

Here’s an example…

Caitlin wants to buy her first home. She has a good job in marketing and earns $100,000 per year which she’s taxed at the marginal rate of 39 percent (high roller! She’s in the $80,000-$180,000 tax bracket so pays 37 percent plus the 2 percent Medicare levy).

In addition to her 9.5 percent compulsory super contributions she adds an extra $5,000 in voluntary super contributions (this keeps her well under the $25,000 cap too, smart Caitlin!).

Hermione Granger studying
Eeek! So much maths. I really had to muster my inner Hermione for this part.

Caitlin’s $5,000 yearly voluntary contributions are made as a pre-tax salary sacrifice, so the money is only taxed at 15 percent, rather than her usual tax rate.

In Caitlin’s scenario, she would save $1,200 in tax per year (this includes the Medicare levy). Meanwhile, that same $5,000 (minus 15 percent) is earning investment returns. Based on Treasury’s deemed earning rate – currently 4.7 percent – she might earn $200 on top of her voluntary contributions.

If Caitlin continues to salary sacrifice the same amount for five years, Caitlin will withdraw around $22,241, saving herself just over $6,000 in tax and gaining an extra $3,241.

To find out how much you could save, use the online estimator.

How do I get my money? 

To receive your money you need to apply to the Commissioner of Taxation for a FHSSS determination and a release of your funds.

Be warned though, if you withdraw the money and then don’t buy the house within 12 months you will either need put the money back into your super or pay an additional 20 percent tax.

Also, you can only apply for the release of funds once, you can’t request another one.

Should I do it?

Look, it’s up to you. It’s a fair bit of work, quite overly complex and was introduced by the government so they could say they are doing something about housing affordability.

If you’re willing to set up the contributions, take the hit from your take-home pay, monitor your contribution cap, are sure you’ll use the money to buy your first home and are happy to deal with the tax office, then go for it.

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