How Does the First Home Buyer Super Saver Scheme Work?
The red hot property market in Brisbane is certainly making life harder for first home buyers. Between July 2020 and July 2021, the median house price in Brisbane increased by close to $78,000. For first home buyers trying to save a 20% deposit, that’s a substantial increase! In fact, a recent survey found 1 in 4 Australian first home buyers will now take 5-10 years to save a 20% deposit (and 1 in 10 will need 10+ years!). But fortunately, there is assistance available for first home buyers who are trying to boost their savings. One option is the First Home Buyer Super Saver Scheme (FHSS).
Can I Use My Super for A House Deposit 2021?
When COVID-19 first started wreaking havoc with the Australian economy in early 2020, the government responded by announcing a series of assistance packages. One notable announcement was that Australians who had suffered economic loss could withdraw money from their superannuation. And understandably, this generated a lot of interest. In addition to plans for paying off debt and managing household expenses, a lot of people were also asking, “can I use my super for a house deposit in 2021?”
While the COVID-19 early release of super program could not be used for a house deposit, there is another option available to first home buyers. This is the First Home Super Saver (FHSS) scheme.
What Is the First Home Buyer Super Saver Scheme?
So, what is the First Home Super Saver scheme? The FHSS scheme has actually been around for a while. First announced in the 2017-2018 Federal Budget, the goal of this scheme is to make it easier for first home buyers to enter the housing market. Under the First Home Owner Super Saver scheme, eligible Australians can make added contributions to their superannuation fund. These accumulated funds can then be withdrawn and used as a deposit to buy a home. This all sounds good in theory, but how does the First Home Saver scheme work?
How Does the FHSS Work?
If you’re a first home buyer who’s interested in the FHSS, then it’s important to ask, “how does the First Home Saver scheme work?” This is because the First Home Buyer Super Saver scheme comes with specific eligibility criteria and strict rules that govern how much you can contribute to your super and how much you can withdraw. Asking, “how does the First Home Saver scheme work?” before you start making contributions could save you a lot of frustration down the track.
First and foremost, to benefit from the FHSS scheme, you need to be over 18 years old and a genuine first home buyer (in other words, you can’t have owned any property in Australia before). The rules of the First Home Buyer Super Saver scheme stipulate that any eligible participant can make voluntary super contributions totalling $15,000 per financial year (commencing from the 1st of July 2017). These voluntary contributions (plus any associated earnings) can then be withdrawn and used for a house deposit. Originally, the amount that could be withdrawn was capped at $30,000 (plus earnings). However, in the 2021-2022 Federal Budget, the Government announced that this cap would be increased to $50,000 (plus earnings), starting from the 1st of July 2022.
What Kind of Contributions Can Be Used for the First Home Saver Scheme?
One very important detail to be aware of is that compulsory super contributions (the kind that your employer automatically makes on your behalf) can not be withdrawn under the FHSS scheme. It also doesn’t allow you to withdraw added contributions that have been paid by your spouse.
Only the following voluntary contributions can be used as part of the First Home Owner Super Saver scheme:
- Before-tax salary sacrifice contributions that you’ve asked your employer to pay on your behalf.
- Personal super contributions that you’ve paid directly from your bank account (this includes both tax-deductible and non-tax-deductible contributions).
What Else Should I Know About the First Home Owner Super Saver Scheme?
There are a few more regulations surrounding the use of the FHSS scheme. These include the following stipulations:
- The home that you plan to buy must be designated for use as “residential premises”. This means you can’t use the money to buy a houseboat, a factory, a caravan or a block of land that you don’t intend to build a house on.
- Once you’ve withdrawn funds from your super under the First Home Saver scheme, you have 12 months to sign a contract of sale. If you need more time, you can apply to the Australia Tax Office (ATO) for an extension, which will give you an additional 12 months (24 months in total).
- If, after 24 months, you still aren’t ready to sign a contract, you’ll either need to re-contribute the funds back to your super or pay a tax penalty (equal to 20% of the funds you withdrew).
- After you’ve purchased a property, you’ll need to live in that property for at least 6 months within the first 12 months after settlement.
Is the First Home Super Saver Scheme (FHSS) Worth It?
In light of the above regulations, you might be wondering, “is it worth using the FHSS – First Home Super Saver scheme?” The FHSS scheme does offer certain benefits that would be unavailable to first home buyers who were only using a traditional savings account. For example, the First Home Super Saver scheme could reduce the amount of tax you’re required to pay. How? Well, if you make before-tax contributions to your super, you’ll still be charged tax once you withdraw the funds. However, you’ll only be charged your marginal tax rate, minus a 30% tax offset.
The First Home Owner Super Saver scheme can also be a good option for those who might struggle with sticking to a budget. Unlike a traditional savings account (where funds can easily be transferred in and out), funds deposited into your super will only be accessible once you’re ready to make your final withdrawal. This means you can’t dip into savings to fund a night out with friends or a spontaneous weekend away.
So, is the First Home Super Saver scheme worth it? This will ultimately depend on your specific financial situation and savings goals. That’s why it’s a good idea to talk to an experienced mortgage broker and consult with a tax professional before making a final decision.
What Are the First Home Buyer Super Saver Scheme Pros and Cons?
Choosing to participate in the FHSS scheme is a big financial decision that could come with long-term repercussions. So, it’s important to carefully evaluate all the relevant First Home Super Saver scheme pros and cons:
The Pros of the First Home Owner Super Saver Scheme
- The FHSS scheme doesn’t currently have a time limit on when you need to withdraw your added contributions. This allows you to customise your savings over several years.
- You don’t have to have a property in mind before you can apply for the funds to be released (making it easier for you to quickly put in an offer once you’ve found the right property).
- If you’re planning to buy your first home with another eligible first home buyer (such as a partner, friend or family member), then you could potentially double your savings through the FHSS scheme. This is because each eligible buyer can withdraw up to the maximum limit from their super.
- You could save on the amount of tax you have to pay each year by entering into a salary sacrifice plan with your employer. This, in turn, could allow you to increase how much money you’re saving.
The Cons of the First Home Owner Super Saver Scheme
- You have to be a genuine first home buyer to benefit from the First Home Owner Super Saver scheme.
- There is a cap on the amount you can contribute each year ($15,000) and a limit on the total sum you can withdraw. This means you may also need a separate savings account to supplement your FHSS scheme savings.
- You can only apply to withdraw funds once under the FHSS scheme. This rule applies even if you change your mind about going through with a purchase, you withdraw less than the maximum allowable amount or if you’re unable to find a suitable property within the specified timeframe.
- You will be required to pay some tax on any funds you withdraw from your super under the FHSS scheme.
How To Apply for First Home Super Saver Scheme (FHSSS)
Once you’ve saved up your deposit and you’re ready to buy your first home, you’ll need to know how to apply for the First Home Super Saver scheme. This withdrawal process involves a total of 5 steps:
- Apply for a ‘determination’ from the ATO to see how much money you’ll be able to withdraw. You can do this online through your MyGov account.
- After receiving your official determination, you’ll then need to make a request to the ATO for your savings to be released.
- Once this request has been approved, the ATO will contact your super fund and ask them to release the funds.
- Your super fund will release your savings directly to the ATO, who will then take off the total tax owing.
- Finally, the ATO will forward the remaining money directly to you.
A Mortgage Broker Can Help You Buy Your First Home
Buying your first home can seem like a daunting task – that’s why it makes sense to get expert advice from a mortgage broker. A mortgage broker can answer all your questions, provide tailored home loan advice and help you to navigate through the entire mortgage application process. To find out more, contact the friendly team at North Brisbane Home Loans today.