First home super saver scheme: a guide for homebuyers

This guide outlines the details of the First home super saver scheme, including how it works, how to participate in it, and the benefits it can offer.

Key takeaways

• The eligibility requirements for the First home super saver scheme and the key benefits and considerations.
• The level of before and after-tax super contributions you are permitted to make.
• How to access your super contributions, and the tax benefits you can attain on those savings by participating in the scheme.

Purchasing a home is a significant financial milestone, but the ever-increasing property prices make it challenging for first-time buyers in Australia to enter the market. 

To help ease this burden, the Australian government created the First Home Super Saver (FHSS) Scheme, aimed at helping first-time buyers save for their first property purchase. 

The FHSS scheme enables eligible individuals to make voluntary contributions into their super fund, which can later be withdrawn for the purpose of financing their first home deposit. 

One of the main benefits of the FHSS scheme, which became operational from 1 July 2017, is it allows aspiring homeowners to save money for their first property within their super fund, taking advantage of tax concessions and potentially accelerating their path to home ownership. 

In this guide, we will outline the details of the FHSS scheme, including how it works, how to participate in it, and the benefits it offers.

Qualifying for the First home super saver scheme

To participate in the FHSS scheme, you must meet certain eligibility requirements:

• Be at least 18 years old when you request a FHSS scheme determination.
• Never have owned property in Australia (including an investment property, commercial property, or land).
• Your name must be on the title of the property you purchase.
• Have not previously made a FHSS scheme release request.
• You must genuinely intend to the property you buy as soon as practicable and for at least 6 months within the first 12 months you own it once it's practical to move in.

Super contributions under FHSS scheme

Under the scheme, you can make voluntary contributions up to a total of $50,000 across multiple years, limited to $15,000 per financial year to your super fund specifically for the purpose of purchasing your first home. These contributions fall into two categories:

• Voluntary concessional contributions - these are before-tax contributions made through salary sacrificed employer contributions and personal deductible contributions.
• Non-concessional contributions - these are after-tax contributions made from your personal savings. 

Accessing the savings

Once you have made voluntary contributions and are ready to purchase your home, you can apply to release these funds along with associated earnings. The maximum amount that can be released is the total of:

• 85% of eligible voluntary concessional contributions (before-tax).
• 100% of non-concessional contributions (after-tax) and
• 85% of associated earnings.

Tax benefits

The primary advantage of the FHSS scheme lies in the tax concessions it offers. Voluntary concessional super contributions under the scheme are taxed at a concessional rate of 15% within your super fund, which is generally lower than most people’s marginal tax rate (the rate you pay on your income).

Additionally, when you withdraw concessional contributions and associated earnings to buy your first home, they are taxed at your marginal tax rate, but you receive a 30% tax offset, effectively reducing the tax burden.

Non-concessional contributions are withdrawn tax free.

Steps to utilise the FHSS scheme

There are quite a few stages involved in the process of participating in the FHSS scheme and accessing the funds when the time comes to buy your home, but by following these steps, the process will be fairly straightforward: 

• Check eligibility - Before diving into the scheme, ensure that you meet all the eligibility criteria outlined earlier.
• Determine savings goal - Assess how much you need to save for your first home purchase and how long it might take you to reach that goal. This will help you plan your contributions accordingly.
• Super contribution strategy - Create a super contribution strategy that combines before and after-tax super contributions to maximise your savings. Keep in mind the annual contribution caps to avoid exceeding them.
• Confirm with your super fund - Check that your super fund will release FHSS scheme’s eligible contributions. Ensure that your name and address in the super fund’s records are the same as the details held by the Australian Taxation Office (ATO).
• Make voluntary contributions - Begin making voluntary contributions to your super fund. Regularly monitor your progress towards your savings goal.
• Request a determination – Once you are ready to purchase your first home, request a determination from ATO by using the ATO Online linked to your myGov account. Check that the information is correct.
• Apply for release - After you have a FHSS scheme determination and are ready to access your FHSS scheme’s amount, you can apply to the ATO to release your FHSS scheme’s funds. You can request any amount up to your FHSS scheme’s maximum release amount shown on your FHSS determination. However, you can only request a release once, even if you previously requested an amount less than your maximum release amount. You can request a release before you sign a contract or within 14 days of signing a contract. You must sign a contract to purchase or construct a home starting from 14 days before requesting your FHSS scheme release amount up to 12 months after you requested for the release. You may apply to the ATO to extend the period for another 12 months.
• Use the savings - Upon approval, you will receive the released funds and earnings into your bank account. These funds can now be used to purchase or construct your first home.

Benefits and considerations

The FHSS scheme offers several benefits for aspiring homeowners, including:

• Tax savings - The scheme provides significant tax benefits, allowing you to save money faster than with a regular savings account.
• Accelerated savings - By contributing through your super, you can take advantage of compound interest returns and potentially accumulate a larger deposit for your home.
• Flexible contributions - You can adjust your contributions as per according to your financial situation and take advantage of bonus contributions from employers if available.
• Joint applications - If you are purchasing a property with your partner, both of you can use the FHSS scheme to maximise your savings.

Despite its advantages, there are some considerations to bear in mind:

• Early release penalty - If you decide not to purchase a property after releasing your FHSS funds, you must either recontribute an amount to super equal to at least your assessable FHSS released amount less any tax withheld or, keep the released amount and pay tax of 20% of your assessable FHSS scheme’s released amount. This may face a tax penalty, which can offset some of the scheme's benefits.
• Impact on retirement savings - Withdrawing funds from your super may reduce your retirement savings. Ensure that you are comfortable with the trade-off between home ownership and retirement savings.
• Property market fluctuations - The real estate market is subject to fluctuations, and the value of your potential home may decrease over time.

Summary

The FHSS scheme is a valuable initiative to help first-time buyers overcome the challenges of entering the property market.

By taking advantage of the tax concessions and the savings opportunities it offers, you could accelerate your path to home ownership. However, it's essential to consider the long-term impact on your retirement savings and understand the eligibility criteria as well as withdrawal process before committing to the scheme. For more information, see the ATO website.
 

* Based on KPMG Super Insights 2023 Report as at May 2023 KPMG Super Insights 2023 Report.

Important information: This document has been prepared by IOOF Investment Management Limited (IIML) ABN 53 006 695 021, AFS Licence No. 230524 as Trustee of the IOOF Portfolio Service Superannuation Fund ABN 70 815 369 818 (Fund). IOOF Employer Super is a Division of the Fund. IIML is part of the Insignia Financial of companies, consisting of Insignia Financial Ltd ABN 49 100 103 722 and its related bodies corporate. This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek advice from a financial adviser and seek tax advice from a registered tax agent. Please obtain and consider the PDS and the Target Market Determination (TMD) both of which are available for consumers to better understand products before making any decision about whether to acquire a financial product. Information is current at the date of issue and may change.