Want to save for your first home? Struggling to resist the urge to dip into your savings meant for that elusive first home deposit? You're not alone!
Many aspiring Australian homeowners face this dilemma; but fear not, there's a little-known government initiative called the First Home Super Saver (FHSS) scheme that could be your saving grace.
Let's dive into the fundamentals of how this scheme works and how it might help you secure your first home deposit, faster.
Read in this article
- Understanding the First Home Super Saver (FHSS) Scheme
- How Does the FHSS Scheme Work?
- Step 1: Contribute Extra Funds to Your Super to take advantage of the FHSS scheme
- Step 2: Accumulate Savings with the FHSS Scheme.
- Step 3: Request a Release of Funds once you've accumulated enough savings in your super account
- You can Request a Determination using your MyGov linked ATO account
- Step 4: Purchase Your First Home using the released funds
- Where to now
- FAQ's
- How exactly does saving inside my superannuation account help me save for a deposit faster than just using a normal savings account?
- The article mentions two types of contributions. What's the difference between concessional and non-concessional contributions for the FHSS scheme?
- What happens to the money once I'm ready to buy a house? How do I get it out of my super?
- Are there any limits or rules I need to be careful of when using the scheme?
- What if I use the scheme but my plans change and I don't end up buying a home? Is my money stuck in super forever?
- Sources & Further Reading
Understanding the First Home Super Saver (FHSS) Scheme
When you think about saving for your first home, stashing your money in a superannuation account probably isn't the first strategy that comes to mind. Typically, superannuation funds are only accessible after you've retired or met specific "conditions of release," which can be quite far off into the future.
However, the little-known government FHSS scheme might be a quiet game changer, allowing you to boost your savings, resist the urge to spend them before you reach your goal, and fast-track your path to homeownership.
The First Home Super Saver (FHSS) scheme can be used by first home buyers to save money inside their super fund to help buy their first home.
How Does the FHSS Scheme Work?
The FHSS scheme lets you make additional contributions to your superannuation, separate from the compulsory superannuation payments made by your employer (known as the Superannuation Guarantee or SG). These extra contributions can be later withdrawn, along with the associated earnings, to be used as a deposit for your first home.
Here are the key steps to get started:
Step 1: Contribute Extra Funds to Your Super to take advantage of the FHSS scheme
These voluntary contributions are in addition to your employer's compulsory superannuation payments and can be used to accelerate your journey towards homeownership.
- You could salary sacrifice your first home savings into super to lower your taxable income.
Step 2: Accumulate Savings with the FHSS Scheme.
As you continue to contribute extra funds, your savings within the superannuation account will grow. The good news is that these contributions are generally taxed at a lower rate within the superannuation system, potentially boosting your overall savings faster than with a regular savings account where you will, pay tax on the interest earned.
- You could pay less tax on your FHSS earnings – compared to keeping it in a traditional bank savings account.
Step 3: Request a Release of Funds once you've accumulated enough savings in your super account
Under the FHSS scheme, you can apply for the release of these extra funds (up to the set limit - currently $50,000) This money, along with any associated earnings, can be used as a deposit on your first home. Keep in mind that there are limits on the amount you can withdraw, so it's crucial to stay informed about the current FHSS scheme rules and regulations.
- You could earn stronger returns on your FHSS contributions, compared to your bank’s interest rates.
Pro Tip: The ATO calls the process, ‘Requesting a Determination'. Your FHSS determination will tell you the maximum amount you can withdraw – this is your FHSS maximum releasable amount. The amount of eligible contributions that can count towards your maximum releasable amount across all years is $50,000. Your FHSS determination will let you know the maximum amount you can withdraw. Read more on the ATO website here.
You can Request a Determination using your MyGov linked ATO account
- Step 1: Log into myGov and your linked ATO account > Super > Manage Super > First Home Saver.
- Step 2: Request an FHSS determination. The maximum amount you can withdraw will be shown on the screen straight away.
Step 4: Purchase Your First Home using the released funds
When you are ready to purchase your first home, you can use these saved extra super funds (and any earnings) and together with any other deposit saved, as the combined deposit for your first home purchase.
The FHSS scheme is another way to accelerate your journey to homeownership, making it a viable option for those who are eager to get into the property market, but who may need some help to resist the urge to spend the deposit before your first the right home to purchase. While it's important to be aware of the scheme's specific guidelines and limitations, the FHSS scheme might just be that powerful helping tool you’ve been looking for to help you save for that long-awaited first home.
So, if you're struggling to resist the temptation to spend your deposit while still saving for your dream home, the Australian government's FHSS scheme might be just the solution you need.
Where to now
Check you're eligible for FHSS before you start making contributions and download the ATO Booklet FHSS Essentials here to learn more about the scheme.
- You must be 18 years old or older to request a FHSS determination or a release of amounts under the FHSS scheme (you can start to save before you turn 18)
- You can’t have owned any property in Australia before including land, investment or commercial property (unless financial hardship applies).
- You can’t have already applied to release money under the FHSS scheme
- There is no requirement for you to be an Australian citizen, Australian resident or an Australian resident for taxation purposes.
FAQ's
Your First Home Saver Questions, Answered. Here’s a quick summary of what you need to know about saving a deposit for your first home.
How exactly does saving inside my superannuation account help me save for a deposit faster than just using a normal savings account?
That’s the essential question, and the answer comes down to one word: tax. When you contribute to a regular savings account, you're using post-tax dollars, meaning you've already paid your full marginal tax rate on that money. The First Home Super Saver (FHSS) scheme lets you make voluntary concessional contributions from your pre-tax salary. These contributions are only taxed at 15% inside your super fund, which for most people is much lower than their personal income tax rate. This immediate tax saving means more of your money is working for you, significantly accelerating your deposit savings.
The article mentions two types of contributions. What's the difference between concessional and non-concessional contributions for the FHSS scheme?
It's a great point to clarify. Concessional contributions are made from your pre-tax income, like through salary sacrificing. This is where you get the biggest tax benefit. Non-concessional contributions are made from your post-tax income—money you've already been taxed on. While you don't get a tax break on the way in for these, the earnings they generate within super are still taxed at the low rate of 15%, so they still offer a tax advantage over a standard bank account. You can use one or a combination of both to reach your savings goal.
What happens to the money once I'm ready to buy a house? How do I get it out of my super?
When you're ready to buy, you need to apply to the Australian Taxation Office (ATO) for an 'FHSS determination' and then a 'release'. The ATO will calculate how much you can withdraw—which includes your eligible contributions plus an amount for the earnings on those contributions. They will then instruct your super fund to release the money to them. The ATO withholds a small amount of tax from the released amount and then deposits the final sum into your personal bank account, ready for you to use as your deposit.
Are there any limits or rules I need to be careful of when using the scheme?
Absolutely. There are a few key rules to be aware of. You can only contribute a maximum of $15,000 per financial year that can count towards the scheme. The total amount you can have released is currently capped at $50,000 worth of contributions, plus the calculated earnings. It’s also critical to remember that you must have the FHSS determination and release approved before you sign a contract to purchase a property. Getting the timing wrong can lock you out of accessing your funds.
What if I use the scheme but my plans change and I don't end up buying a home? Is my money stuck in super forever?
No, you're not locked in. If your plans change after the money has been released to you by the ATO, you generally have 12 months (with a possible 12-month extension) to purchase a home. If you don't, you have two choices: you can contribute the released amount (less any tax withheld) back into your super fund as a non-concessional contribution, or you can keep the money and pay a 20% 'FHSS tax' on it. This flexibility ensures your money isn't lost if life takes an unexpected turn.
Sources & Further Reading
- For Official Scheme Information: The Australian Taxation Office (ATO) is the administrator of the scheme and provides the most definitive and comprehensive information for first home buyers.
Australian Taxation Office (ATO), "First Home Super Saver Scheme" - For Contribution Types and Caps: The ATO website clearly defines the rules around making voluntary concessional (before-tax) and non-concessional (after-tax) contributions to superannuation, which are central to how the FHSS scheme operates.
Australian Taxation Office (ATO), "Super contribution caps" - For the Legislative Basis of the Scheme: The rules for the FHSS scheme were enacted through amendments to Commonwealth legislation, primarily the Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 1) Act 2017.
Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 1) Act 2017 - For Federal Government Fact Sheets and Policy Information: The Australian Government's Treasury department provides policy documents and fact sheets explaining the intent and mechanics of the scheme.
The Treasury, "First Home Super Saver Scheme Review," (2022). - For Calculating Associated Earnings: The earnings on contributions are not the actual market earnings but are calculated at a set rate. The ATO explains this is the 'shortfall interest charge rate'.
Australian Taxation Office (ATO), "Shortfall interest charge" rates.
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Drew Browne is a specialty Financial Risk Advisor working with Small Business Owners & their Families, Dual Income Professional Couples, and diverse families. He's an award-winning writer, speaker, financial adviser and business strategy mentor. His business Sapience Financial Group is committed to using business solutions for good in the community. In 2015 he was certified as a B Corp., and in 2017 was recognised in the inaugural Australian National Businesses of Tomorrow Awards. Today he advises Small Business Owners and their families, on how to protect themselves, from their businesses. He writes for successful Small Business Owners and Industry publications. You can read his Modern Small Business Leadership Blog here. You can connect with him on LinkedIn. Any information provided is general advice only and we have not considered your personal circumstances. Before making any decision on the basis of this advice you should consider if the advice is appropriate for you based on your particular circumstance.
