How does the First Home Super Saver Scheme work?

Depending on what stage of life you’re in or your current goals, buying your first home is both exciting and quite stressful. With inflation and money’s declining purchasing power around the world, it’s challenging to buy your first home. But in Australia, it can be easier.

The Australian government put forth what it calls the First Home Super Saver Scheme or FHSSS, where first-time buyers can avail a pretty good home loan deal.

The FHSSS is an initiative that allows Australians to save money for their first home through their superannuation fund.

Under the scheme, aspiring homeowners can voluntarily contribute to their super fund to purchase their first home while boosting their deposits with tax savings and a good interest rate. The FHSSS is one of several home loan programs available to first-time home buyers in Australia.

What kind of houses can you buy under the First Home Super Saver Scheme?

You can only buy residential premises. These include the following:

• vacant land if you plan to build
• a property that will be your home and not for investment purposes
• a residential premise that you will occupy for at least six months after your purchase or after construction

The property cannot be any of these:

• any premises not designed as residential
• houseboat
• motor home
• vacant land

Your contract can be for constructing a home on vacant land if it was not purchased before applying for an FHSSS determination. The contract should also take effect within 12 months of the date you requested a fund release.

Eligibility criteria for the FHSSS

Anyone can make eligible contributions, even those who are younger than 18 years old. Here are the detailed First Home Super Saver Scheme eligibility requirements:

1. You should be at least 18 years old when requesting an FHSSS determination or a release of money under the scheme. You can start saving before you are 18 years old.
2. You are buying a house for the first time and have never owned a property in Australia. Under this requirement, the first-time buyer should not have had property, such as vacant land, commercial property, a lease of land in Australia, or a company title interest in land in Australia. An exception: you can apply under the FHSSS even after having owned property if there is proof that you have suffered financial hardship:

• bankruptcy
• relationship breakdown, separation, or divorce
• loss of employment
• illness
• natural disaster effects

3. You plan to occupy the property as soon as practicable or for at least six months within the first 12 months you own the property.
4. You have not previously made a release request under the FHSSS.

Here’s more good news about the scheme. You do not need to be an Australian citizen or an Australian resident for tax purposes to use the FHSSS.

The government assesses eligibility individually. Couples, friends, or siblings can access their own eligible FHSSS contributions to buy the same property.

If your partner, sibling, or friend had previously owned a house, it will not stop you from applying for the First Home Super Saver Scheme.

Making voluntary contributions

Under the FHSSS, you can contribute up to $15,000 per financial year and $50,000 in total. You must make either before-tax or after-tax voluntary contributions to your super fund.

If you are purchasing a home with your partner, you can receive a combined total of $100,000 under the scheme.

Before-tax contributions include salary sacrifice contributions. These are personal contributions for which you claim a tax deduction. Not all employers provide employees with salary sacrifice arrangements.

Superannuation guarantee contributions made by your employer and spouse contributions cannot be released under the FHSSS.

You can have a maximum of $15,000 of your voluntary contributions from any one financial year to be released under the FHSSS, while you can have up to a total of $50,000 contribution across all years. When saving through this program, you will also receive a deemed amount of associated earnings from your contributions.

According to this video, around 43,000 Australians have taken advantage of the First Home Super Saver Scheme:

The scheme has been well-received by the mortgage broking industry – they’ve cited the advantages of FHSSS’ flexible approach to superannuation.

How will your contributions grow?

Under FHSSS, you will receive associated earnings on top of your contributions. The money is a deemed amount of earnings calculated based on the shortfall interest charge (SIC) rate.

Below shows the SIC rates for the 2023-2024 income year, according to the Australian Tax Office:

Saving under FHSSS

There are a few points to remember when saving under the First Home Super Save Scheme:

• Before saving, check that your nominated super funds will release the money
• Contact your super fund about fees, charges, and insurance implications
• Ensure that your super fund has your current and correct details. Check that your name and address in your super fund match the details under the records of the Australian Taxation Office.
• Receiving FHSSS amounts will affect your tax for a particular year in which you make a request to release. When filing your tax return, include both the assessable and tax-withheld amounts.

Applying to release funds

Navigating the First Home Super Saver Scheme involves understanding its specific rules and timelines to ensure a smooth process towards purchasing your first home. Here are some key points to consider:

• You may only request a release for funds under the scheme once
• You can request another FHSS determination if there was an error, but this can only be done if you have not signed a contract or requested a release
• If you happen to request a release based on an FHSS determination that has incorrect information, there is a chance that your request may be delayed or cancelled. This can affect your eligibility for the First Home Super Saver Scheme.
• It could take 15 to 20 business days to receive your money upon making a release request. Consider this timing when you plan to buy your first home.
• You must have an FHSSS determination before signing a property contract. Given the timelines, you must make your request to release FHSSS funds within 14 days of signing a property contract.

What is the maximum release amount?

The FHSSS maximum release amount is the total of your eligible considerations, including the yearly and total limits, and your associated earnings.

The maximum release amount includes:

• 100% of your eligible personal voluntary super contributions you have not claimed a tax deduction for or your non-concessional contributions
• 85% of your concessional contributions or your eligible salary sacrifice contributions
• 85% of eligible personal super contributions you have claimed a tax deduction for
• The deemed earnings associated with your contributions

There are certain tax implications under the scheme:

• Concessional contributions or those that are salary-sacrificed will be taxed at 15% in your super fund
• Any after-tax contributions will not be taxed

As mentioned, you have to include the amount stated in your FHSSS payment summary into your tax return for the financial year in which you made the request for an FHSSS fund release. The payment summary shows details of taxes withheld, which should also be in your tax return.

The ATO says that the tax payable on this assessable amount will receive a 30% tax offset.

The ATO will withhold tax based on two points:

1. your expected marginal tax rate including Medicare levy less a 30% tax offset
2. 17% if the ATO cannot estimate your expected marginal rate

Updates and changes to the FHSSS

In May 2021, the Australian government announced that it would improve the operation of the FHSSS. These improvements include:

1. Increased discretion of the commissioner of taxation to amend and revoke requests under the FHSSS.
2. Individuals can withdraw or amend their requests prior to receiving an FHSSS amount.Those who withdraw their requests can later re-apply for future FHSSS releases.
3. Individuals will have up to 90 days, instead of the current 14 days, to request a release authority after they enter into a contract to buy or build a home.
4. If the FHSSS money has not yet been released, the commissioner can return the released FHSSS amounts to super funds.
5. Money returned will be treated as funds’ non-assessable non-exempt income and does not count towards the individual’s contribution caps.

The ATO said these updates are set to take effect on 20 September 2024, with some changes being applied retrospectively from 1 July 2018.

The First Home Super Saver Scheme: your first step towards home ownership

The First Home Super Saver Scheme is a valuable tool for first-time buyers in Australia, providing a tax-efficient path to saving for a home. By making the most of this scheme, owning a home is within your reach. A clear understanding of the FHSSS's rules and careful planning are essential to fully benefit from what it offers.

If you need further advice on the home loan process, contact one of the professionals in our Best in Mortgage section. Here you’ll find the best mortgage experts in Australia who can guide you with the First Home Super Saver Scheme and other home loan options.

Is the First Home Super Saver Scheme a good option for first-time home buyers? Let us know in the comments