Q. With the downturn in the property market, I am desperately trying to save as quickly as possible to buy my first home. I am looking to use the First Home Super Saver Scheme (FHSSS). How does it work and how do I take advantage of the incentive?
A. The FHSSS applies to voluntary personal and employer contributions in excess of any mandatory superannuation contributions (such as the 9.5% Superannuation Guarantee) made from 1 July 2017.
In order to qualify, you must be 18 or over and have not previously owned property in Australia. Broadly, superannuation contributions of up to $15,000 per financial year and $30,000 in total, can be accessed under this scheme. Both members of a couple may be eligible to take advantage of this measure to buy their first home, effectively meaning that a couple can access voluntary contributions of $30,000 per financial year and $60,000 in total.
In addition to being able to access superannuation contributions (up to the above amounts) an associated amount of earnings can also be accessed from the super fund. 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 4.94% effective January-March 2019. Note that the Associated Earnings rate could be greater or less than the actual rate of return earned on the funds.
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 generally be taxed at 15% when made to the fund. Non-concessional contributions will not attract tax on entry to the fund but are made from after-tax money.
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.
Tax may be payable on amounts you withdraw under this scheme. That is, the taxable portion of amounts accessed under this scheme will be added to your assessable income for the year but you will be eligible for a 30% tax offset to reduce any tax burden. If applicable, the ATO will withhold an amount of tax before you receive the final proceeds.
Q. How do I access my Super under the First Home Super Saver Scheme (FHSSS)?
A. The first step is to apply for a determination of your FHSSS entitlement from the ATO. The ATO will advise you the maximum FHSS release amount available, the associated earnings and the tax to be withheld.
You can request a determination on multiple occasions, in case you change your mind on withdrawing the funds,
Once you have received a determination, you then typically apply for a release of the funds when you are ready to purchase your home. Unlike applying for a determination, you can only apply for a release once.
You can apply for the release of the FHSSS maximum release amount stated in the determination, or you can choose a lower amount.
Once your withdrawal request is received, it will take approximately 25 business days to process your withdrawal request. The ATO will then issue a release authority to your Superannuation fund. Your fund will then send the requested release amounts to the ATO. The ATO will then withhold the appropriate amount of tax, and send the balance to your nominated bank account.
The withholding tax will be calculated at your marginal tax rate less a 30% tax offset or 17% if the ATO is unable to estimate your expected marginal rate.
The ATO will issue a payment summary that shows both concessional and non-concessional contributions made, the associated earnings and the tax withheld.
When you lodge your tax return you will include the FHSS released amount shown on your payment summary as assessable income in your income tax return. You declare this for the year you made your request for release.
Once your savings have been released, you have up to one year to sign a contract to purchase or construct a home. If you do not sign a contract to purchase or construct a home within the year, you can either apply for an extension of time of up to a maximum of a further year or recontribute the amount into your super fund. This must be at least equal to your assessable FHSS released amount, less any tax withheld by the ATO.
You must notify the ATO if you either sign a contract to purchase or construct a home or recontribute the amount into your super fund or you will be subject to FHSS tax. This is an additional tax equal to 20% of your assessable FHSSS released amounts.