Q. My partner and I are saving to buy our first home. We are looking to use the First Home Super Saver Scheme (FHSSS). How does it work, what do we need to do to take advantage of the incentive?

From 1 July 2018, first home buyers will be able to access voluntary contributions made to their Superannuation fund, including associated deemed earnings, to purchase their first home.  In order to qualify, you must be 18 or over and have not previously owned property in Australia.  If your partner has previously owned property, and you haven’t, then only you will be eligible to apply.

The FHSSS applies to voluntary personal contributions and Employer contributions made in excess of the 9.5% Superannuation Guarantee to Superannuation from 1 July 2017.  Up to $15,000 per financial year and $30,000 in total can be contributed to Superannuation per person.  Both members of a couple are eligible to take advantage of this measure to buy their first home.  Effectively a couple are limited to a voluntary contribution limit of $30,000 per financial year and $60,000 in total.

Contributions can be made as pre-tax Concessional contributions or can be made as post tax Non-concessional contributions. The contributions will count against the applicable Superannuation contribution caps.  The Concessional contribution cap which includes Employer contributions or personal deductible contributions will be $25,000 and the Non-concessional contribution cap (personal after-tax contributions) will be $100,000 per financial year.

Concessional contributions will be taxed at 15% when made to the fund.  Non-concessional contributions can be made tax free. 100% of your voluntary non-concessional contributions and 85% of your voluntary concessional contributions count against the voluntary contribution limit.   

Earnings available for withdrawal will be calculated at a deemed rate of return referred to as the Associated Earnings rate.  The Associated Earnings rate will be calculated on the Shortfall Interest Charge which is currently 4.77%. Note that the Associated Earnings rate could be greater or less than the actual rate of return earned.

Concessional contributions and earnings that are withdrawn to purchase a property will be taxed at the individual’s marginal tax rate less a 30% tax offset.  When Non-concessional contributions are withdrawn, they will not be taxed, however, the deemed earnings will be taxed at the individual’s marginal tax rate less the 30% tax offset.  The ATO will calculate and withhold the tax before a withdrawal can be made.

To qualify to have the funds released, the purchase must be a residential home or land that you intend to build a home on.  You must occupy the property for at least 6 months in the first year of ownership after it is practical to do so.

FHSSS will be administered and monitored by the ATO.  The ATO will determine the savings that can be released as a deposit and they will instruct the Superannuation funds to make the withdrawal payment.  You will have 12 months from the time that you release the savings to purchase a home.  If you don’t comply with the rules you must either recontribute the funds to Super or pay a tax equal to 20% of the amount released from the fund.

If you plan to make the most of the strategy to buy a home in the next 2 years, you would want to start the strategy as soon as possible but check that your Super fund will accept FHSSS contributions first.

The pre-tax contributions will be limited to your remaining Concessional Contribution Cap of $25,000 which includes Employer Superannuation contributions.  If you currently earn $120,000, then you already receive at least $11,400 in Superannuation Guarantee contributions a year so you would be limited to $13,600 a year of voluntary Concessional contributions towards your FHSSS.