Q. My partner and I are saving to buy our first home in the next few years. Can you please explain how the First Home Super Saver Scheme (FHSSS) announced in the 2017 Federal Budget will work and what 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 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 contributions made to Superannuation from 1 July 2017. Up to $15,000 per 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 can make a combined contribution of up to $30,000 per 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.
Earnings available for withdrawal will be calculated at a deemed rate of return. The deemed rate of return will be calculated on the Shortfall Interest Charge which is currently 4.78%. This rate applies regardless of what the actual rate of return on the funds is.
Concessional contributions and earnings that are withdrawn to purchase a property will be taxed at the individual’s marginal tax rate less a 30% tax offset. When Non-concessional contributions are withdrawn, they will not be taxed, however, the deemed earnings will be taxed at the individual’s marginal tax rate less the 30% tax offset.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. It would not include a houseboat or motor home. 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 3 years, you would want to start the strategy as soon as legislation is passed 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 $100,000, then you already receive at least $9,500 in Superannuation Guarantee contributions a year so you would be limited to $15,500 a year of voluntary Concessional contributions towards your FHSSS.
Submissions for consultation on the draft legislation closed on 4 August. The proposed FHSSS will require the passage of legislation through the parliament before being implemented.