Are you a first home buyer planning to buy your first home to fulfill your dream? And have you started saving to turn that dream into reality? Do you know you can maximize your savings through the First Home Super Saver Scheme (FHSS) by depositing the money in your super account where your employer is currently paying your superannuation?
The government allows first home buyers in Australia to deposit money before tax with contributions taxed at a concessional rate of 15% which is known as the First Home Super Saver (FHSS) scheme.
What is the First Home Super Saver (FHSS) Scheme?
FHSS Australia is a government initiative designed to help eligible first home buyers save for a home deposit by becoming an owner of a residential property for the first time by saving money in your existing super fund where the before-tax contributions will be charged at 15%.
Suppose, Sam is a full-time employee having an $80,000 yearly salary. His employer contributed 12% as Super Guarantee (SG) which is equivalent to $9,600. Additionally, he requested his employer to deposit $15,000 as salary sacrifice to his super fund.
FHSS Tax Benefits:
Taxable income $65,000 (reduced by $15,000 for salary sacrifice)
Voluntary super contribution $15,000 (taxed at 15% concessional rate: $2,250)
Tax saved: $2,250 and amount in super: $12,750.
So now the main question is, how much can you contribute through the First Home Super Saver scheme as salary sacrifice from your salary for your home deposit savings? There is a cap for voluntary super contribution and up to that threshold you can deposit to your super account.
FHSS Contribution Limits and Caps
Maximum $50,000 total, and yearly $15,000 you can contribute to your super fund from your pre-tax salary.
Suppose, if we consider the same example as used above – the employer contributed $9,600 as SG to his super and he requested his employer to contribute another $15,000 per year.
If he follows this process to sacrifice his salary from before tax, then the first three years will be $45,000 and the fourth year will be the remaining $5,000. And after four years, he will be eligible to withdraw the amount against $50,000.
However, you can contribute any amount following the FHSS cap and if you want to avail the full tax benefit up to $50,000 then you have to wait a minimum of four years. But it depends on your income level and also the tax benefit amount depends on your level of income. If you pay tax at a higher marginal rate then your tax benefit will also be higher.
Is FHSS Separate from the $30,000 Super Contribution Cap?
No.
For FHSS eligibility, you may know the maximum yearly superannuation cap is $30,000 including your employer SG, and your salary sacrifice. So, your voluntary contribution for FHSS tax saving for your residential property will be included within the $30,000 cap.
Suppose, if we use the same example as above, Sam’s employer contributed $9,600 as SG and the rest $20,400 you can use as salary sacrifice. As your FHSS yearly cap is $15,000, Sam is eligible to utilize his full cap for FHSS. If he wants then he can also sacrifice an additional $5,400 in salary.
How Much Can You Withdraw from FHSS?
As mentioned, first home buyers have a maximum cap of $50,000 and after four years when your balance reaches $50,000, you can apply for the withdrawal.
It will be better to track the voluntary salary sacrifice in your super account for the First Home Super Saver (FHSS) scheme. When you have confirmed that you have used the full FHSS limit then you are eligible to withdraw and you have to apply to the ATO through myGov.
FHSS Withdrawal Calculation: Understanding the 85% Rule
From your $50,000 in concessional contributions, you can only withdraw 85%, which equals $42,500. The reason you don’t get the full $50,000 back is because your super fund already deducted and paid 15% tax; equivalent of $7,500 to the ATO when the contributions were made.
However, you will get a return on this $42,500 which is deposited after 15% tax deduction. But these earnings will not be the same as your super fund actually earned. The ATO will calculate earnings using their own rate which will be added to your $42,500.
No worries!
By saving $50,000, you have saved tax on it. Otherwise, if you do not do it then you have to pay at a high marginal tax rate in case of your own investment.
If you have a spouse then you can maximize your tax savings by utilizing the same First Home Super Saver tax benefits for both of you. And at the time of purchasing your first residential property, you both will receive $85,000 plus return calculated by the ATO.
To be eligible to get First Home Super Saver tax benefits, you have to maintain a few compliance requirements per the ATO.
FHSS Eligibility Requirements and Compliance Checklist
- Submit your application for FHSS determination before settlement (before property ownership transfers to you). You’ll need to submit your release request through MyGov and have all your super fund details ready when lodging the application.
- Timing is important. Once the FHSS amount is released, you must sign a contract to purchase or construct your home within 12 months of receiving the money.
- The ATO typically processes FHSS release requests within up to 25 business days from when they receive your application. Plan ahead and factor this processing time into your property purchase timeline so you have the funds available when needed for settlement.
- The property must be a residential dwelling in Australia where you intend to live – you cannot use the released funds to purchase an investment property. You must live in the property for at least 6 months of the first 12 months after it becomes practical to move in, unless you have exceptional circumstances approved by the ATO.
Final Thoughts: Maximizing FHSS Tax Savings
Now you have some idea about how the First Home Super Saver (FHSS) Scheme works and the tax savings available to first home buyers using FHSS Australia. The ATO has a fact sheet on it, and you can also visit the website to learn more about the tax savings and the eligibility criteria based on your income level.
Additionally, you can also consult with your tax or financial consultant to utilize the maximum tax benefits from your FHSS savings.
DISCLAIMER: The information provided in this guide is general in nature only and does not constitute personal financial, taxation, or legal advice. It has been prepared without taking into account your individual objectives, financial situation, or needs. Before acting on any information, you should consider the appropriateness of the information to your own circumstances and seek advice from a qualified financial adviser, tax agent, or legal professional.
