The FHSS scheme allows you to make voluntary contributions (before or after tax) into your super, which you can then later withdraw for your first home deposit. You can contribute up to $15,000 per financial year, up to a total of $30,000.
The main benefits of the scheme are taking advantage of reduced tax rates through super and potentially higher earnings on your savings – which all helps in saving up for a deposit!
Are you eligible?
You may be eligible for the scheme if:
- you’ve never owned property or land in Australia
- intend on purchasing a property for residential purposes (for example, it can’t be a houseboat, motor home or investment property)
- intend on living in the property for at least six of the first 12 months you own the property, and
- you’ve not previously withdrawn funds as part of the scheme.
How does it work?
Any voluntary contributions you’ve made into your super from 1 July 2017 could be eligible savings as part of the scheme – there’s no need to open a separate account.
Any before-tax contributions (for example, salary sacrifice) will be taxed at 15% on the way in, and any investment earnings on these contributions will also be taxed at 15%.
From 1 July 2018, you’ll be able to withdraw these funds by applying to the Australian Taxation Office (ATO). Once determining you’re eligible, the ATO will arrange for your money to be paid to you from your super fund.
When your savings are withdrawn from super, any before-tax contributions and earnings will be taxed at your marginal tax rate less a 30% tax offset. If you made any contributions from your after-tax income, no tax will be deducted on these contributions.
You then have 12 months to sign a contract – or you may be able to ask the ATO for a 12-month extension. Alternatively, you could recontribute the amount into your super.
Use the Government’s online estimator tool to estimate what your savings could be under the scheme.
Benefits of the scheme
- Tax savings. Before-tax contributions into super (for example, through salary sacrificing) will be taxed at 15%. For most people, this will be less than their marginal tax rate - which could be up to 45% plus the Medicare levy.
- Potentially higher earnings on your savings. You might earn a higher return on your savings if the deemed rate (determined by the ATO) is higher than what you’d get in your regular savings account or term deposit. The deemed rate for the quarter ending March 2018 is 4.72%. See the ATO's website for the current deemed rate, also known as the shortfall interest charge.
Things to consider
- Are you on a lower income? A benefit of the scheme is taking advantage of the lower tax rates through super to boost your savings. If you’re in a lower income bracket where you pay little to no tax, you may want to consider whether this is suitable for you.
- Normal super contribution limits still apply. The most you can contribute to super from your before-tax income is $25,000 (which includes employer superannuation guarantee contributions), and $100,000 from your after-tax income. Although you can contribute up to $15,000 per year under the scheme, make sure you don’t go over these maximums as tax penalties may apply.
- You’ll still have to pay tax on the way out. Your before-tax contributions and earnings will be taxed at your marginal tax rate, minus a 30% tax offset.
- Investment returns are deemed by the ATO, not based on your fund’s performance. The earnings on your contributions will be calculated by the ATO on a deemed rate based on a 90-day Bank Bill Rate plus 3% – which could be higher or lower than what you could earn outside of super.
- Speak with your lender to confirm what is considered to be ‘genuine savings’. When you apply for a home loan, lenders like to see a history of regular contributions into a savings account. It’s a good idea to check they see FHSS savings as genuine savings before opting into the scheme.
Want to talk it over?
If this scheme interests you, it’s a good idea to talk to a tax agent or financial adviser to see whether this suits your situation. As a Cbus member, you have access to qualified financial advisers over the phone as part of your membership.
The information is about Cbus. It doesn’t take into account your specific needs, so you should look to your own financial position, objectives and requirements before making any financial decisions. Read the Cbus Product Disclosure Statement to decide whether Cbus is right for you, or call 1300 361 784 for a copy.