How to use the First Home Super Saver Scheme
How the FHSS allows first-time home buyers to boost their deposit with tax savings through super.
Saving for a home deposit can feel like an uphill battle for many Australians. However, one effective way to boost your savings is by utilizing the tax advantages of the First Home Super Saver Scheme (FHSSS).
What is the FHSSS?
The FHSSS is a Federal Government scheme that allows first-time home buyers to make voluntary contributions to their superannuation fund, which can later be withdrawn to use for a home deposit. This scheme offers tax benefits that can accelerate your deposit savings significantly.
In a nutshell, there’s three components of this scheme to understand:
You make extra voluntary contributions to your super: Make extra pre-tax or post-tax contributions to your superannuation fund.
You can withdraw the extra super contributions before signing a contract: You can withdraw up to $50,000 per person (with a limit of $15,000 per financial year) to use as a deposit for your first home. For couples, this means you can withdraw up to $100,000 across all the years.
Pocket some tax savings: Contributions are taxed at a lower rate, and the withdrawal is taxed at your marginal rate minus a 30% offset. The savings you pocket from making the additional contributions to super can go towards your first home.
We talked about this scheme in episode 47 of Mind over Money. Listen here.
How does it work?
1. Make voluntary contributions to your super
Begin by adding extra money to your super through voluntary contributions, either via salary sacrifice with your employer or transferring money via direct debit, BPAY to your super fund. P.S. — Make sure you check that your super fund is compatible with this scheme (most funds are).
2. Get ready to buy your home
Ensure you apply for your super release before signing any contracts. Communicate with your Waymaker Coach and/or Mortgage Broker to assess and prepare your finances for purchase.
3. Apply with the ATO
Part 1: Determination: Log into myGov, navigate to the ATO, and request an FHSS scheme determination to find out the maximum amount you can withdraw.
Part 2: Release: Apply for the release of your super savings through myGov.
4. Receive your funds
The ATO will instruct your super fund to send the FHSS savings to them. These funds may be used to offset any outstanding debts with the ATO, except for HECS/HELP loans. Include the withdrawn amount in your tax return.
5. Purchase your home
Once you have the funds, you can sign the contracts for your first home. If you cannot buy a home within 12 months, contact the ATO for an extension or to return the money to your super.
6. File Your tax return
Consult with your tax advisor/accountant to correctly report your FHSS scheme amount, taxes paid, and any applicable tax offsets in your return.
For more information on the scheme, visit the ATO website.
How much tax could I save?
The purpose of the FHSSS is to provide tax benefits to increase savings for the use of purchasing a first home. According to the ATO, the tax benefits are provided by the following means:
Accumulation:
salary sacrificing means that savings are taxed at 15% on entry into super rather than at the individual’s marginal tax rate (saving of up to 30%); and
earnings are taxed within super at a rate up to 15% and a deemed earnings rate is used to calculate the potential release amount.
Withdrawal:
non-concessional contributions are withdrawn as a non-assessable non-exempt income;
concessional contributions are taxed at the individual’s marginal tax rate with a 30% tax offset; and
any associated earnings from the released contributions are treated in the same manner as concessional contributions.
The government has created a basic calculator to help you determine the potential tax savings.
Get expert help to use the FHSS
At Waymaker Finance, we specialise in helping Australians purchase their first home, which includes helping them navigate the FHSS to maximise their savings.
Our Financial Coaches can guide you through the eligibility criteria and the process of making voluntary contributions. Our Mortgage Brokers can help you process your home loan and purchase with confidence.
Book a call today with one of our Mortgage Brokers.
