Sep 12, 2022 Matthew Hung
Help for first home owners
Help for first home owners
Housing affordability has always been a challenge especially for first homebuyers. Recent statistics have shown that it takes a first homebuyer almost 11.5 years to save a 20 percent deposit for an average priced home. And now with interest rates on the rise, the cost of servicing a home loan may add to the pressure of purchasing your first home.
The First Home Super Saver Scheme (FHSS) provides an opportunity for Australians to increase their savings towards buying their first home. This Scheme involves putting some money aside into your Super Fund account where your savings can grow in a lower tax environment.
Say you are earning $70,000 per year and you wanted to set aside $15,000 towards your first home. By salary sacrificing this amount into super, you would be saving $2,925 of tax (the difference of your marginal tax rate at 34.5% and the income tax rate in super at 15%).
How does the scheme work?
You make concessional (before tax) or non-concessional (after tax) contributions into your Super Fund and then apply to withdraw the funds when you are ready to buy your first home to live in. Note that the contributions under the FHSS scheme must be voluntary contributions; employer mandated contributions will not count.
You may apply to release eligible contributions of $15,000 each year, up to a total of $30,000 across all years. From 1 July 2022, the maximum releasable amount across all years increased from $30,000 to $50,000 per person. Therefore, a couple may release eligible contributions up to $100,000 in total towards purchasing their first home together.
You will also receive an amount of earnings that relate to those contributions, using a deemed rate of return calculated by the ATO.
Am I eligible?
To be eligible you must:
- Be at least 18 years old;
- Have never owned real property in Australia (including investment property, vacant land, a lease of land etc.);
- Not previously used the FHSS scheme;
- Live in the home you buy, or intend to live in the home for at least 6 months within the first 12 months of ownership, and as soon as it is practicable to move in.
When can I access my savings?
You must first request for a FHSS determination from the ATO.
Subsequently, when you are ready to purchase your first home, you may request a release of your funds, bearing in mind that you have up to 12 months after that to sign a contract to purchase or construct a home. If you do not sign a contract within 12 months, the ATO may grant an extension for a further 12 months.
Is there tax on release of the funds?
Upon release of your eligible contributions and associated earnings on the contributions, the ATO will withhold tax calculated at your expected marginal tax rate plus the Medicare levy, less a 30% tax offset. Where your expected marginal tax rate cannot be estimated, then a 17% withholding tax rate will apply. Note that any eligible non-concessional (after tax) contributions will not be subject to tax.
You will receive a payment summary showing the assessable FHSS amount released and tax withheld for use when preparing your tax return.
How can I contribute?
You can set up a salary sacrifice arrangement with your employer if they offer this. Otherwise you may make voluntary personal super contributions into your Super Fund. You should be careful not to exceed your contribution caps.
If you would like to learn more, or wish to find out if using the FHSS scheme is the right choice for you, please contact your RDL advisor.