The dream of owning a home has become increasingly challenging for many individuals due to rising property prices and soaring interest rates.
To aid aspiring homeowners, the Australian Government introduced the First Home Super Saver Scheme (FHSS) in July 2017. The FHSS scheme is designed to help first-time buyers save money faster by using tax advantages in the superannuation system through voluntary concessional contributions.
In this article, we will explore how the FHSS scheme works, the potential savings it can generate, and whether it's worth pursuing.
What is the First Home Super Saver Scheme?
The First Home Super Saver Scheme (FHSS) is a government scheme offered to first home buyers. It allows eligible Aussies to make voluntary contributions to their super fund to later withdraw and use towards a deposit on their first home.
Under the FHSS scheme, first home buyers can contribute a maximum of $15,000 per financial year and up to a total of $50,000 overall per person. This means you need to have made over three years’ worth of contributions at the annual maximum of $15,000 before you can withdraw the $50,000 total.
So, if you’re buying a house with your partner, you could withdraw a combined total of $100,000 (before tax) worth of voluntary contributions to go towards your deposit. You will also receive associated earnings that relate to those contributions.
Voluntary concessional contributions (e.g. salary sacrifice) are taxed at a discounted rate of 15%, while non-concessional contributions are already taxed at their marginal rate.
Keep in mind your concessional contributions (taxed at 15%) cannot exceed $27,500 per year - this also includes the minimum 11% super guarantee from your employer.
Here is an example:
John earns a $100,000 base salary annually. His employer pays $11,000 (11%) into his super fund each year.
This means he can contribute an extra $16,500 into super at the concessional rate. But remember, the FHSS only allows up to $15,000 per year.
How much can you have released from the FHSS scheme?
The amount you can withdraw is limited and depends on the type of contributions you have made to your super fund.
- Non-concessional contributions - 100%
- Concessional contributions - 85%
- Eligible personal voluntary super contributions you have claimed a tax deduction for - 85%
Deeming rates and the Shortfall Interest Charge explained
The shortfall interest charge essentially means you could owe more at tax time than you initially thought. Under the scheme, the ATO calculates your associated earnings using the 90-day bank bill rate plus 3%. This figure is known as the ‘shortfall interest charge’ (SIC). It is updated quarterly - the current SIC rate for the July to September 2023 period is 6.9%.
As mentioned, under the FHSS withdrawal scheme, you receive the earnings on your contributions. Then, those associated earnings on your FHSS scheme savings are ‘deemed’ using a formula calculated by the ATO to calculate your tax liability.
So, regardless of if you earned this rate or not through those super contributions, the ATO says you earned this amount. If your super fund netted you say 8% returns, you’re coming out ahead. It’s very possible for the SIC to be higher than your actual earnings, which can sting a bit.
What properties can be purchased with the scheme?
Contributions released under the FHSS scheme can be used to buy a new or existing home in Australia.
Vacant land is not eligible. However, if you’re building your own home, you must put your super withdrawal towards the build, not the deposit on the block of land.
After your contributions are released, you have 12 months to purchase your own home or sign a contract to build. You must notify the ATO within 28 days of doing so. If you don’t meet this requirement, you can apply for a one-year extension or re-contribute the funds to your super fund. Alternatively, you can keep the money, however this comes with a price. You must pay an additional 20% tax on the amount released through the FHSS scheme.
Who is eligible for the First Home Super Saver Scheme?
It’s all in the name - you can only use the FHSS scheme if you have never owned a property in Australia before.
However, there is an exception if you can prove to the ATO you have suffered a financial hardship that has resulted in the loss of property interests. This could include divorce, bankruptcy, loss of employment, illness, and natural disaster. To apply for the financial hardship provision, head to myGov or fill out an application form via the ATO.
To be eligible for the FHSS scheme, you must:
- Be at least 18 years of age (although you can make contributions at any age)
- Not have previously made a FHSS release request
- Never have owned a property including a home, vacant land, investment property, commercial property etc.
In addition to the above, you must also intend to live in the property for at least six of the first 12 months of owning the home.
How much could you save through the FHSS scheme?
The amount you could save through the FHSS largely depends on the amount of voluntary contributions you make and the returns generated on those contributions.
According to the government’s FHSS estimator, someone with a taxable income of $80,000 who salary sacrifices the maximum $15,000 a year into their super would reduce their take home pay by $9,800 annually.
That would see them with $39,784 available for a deposit after two years – $9,279 more than they would have had saved through a savings account paying 1% per annum in interest. However, many savings accounts offer better interest rates than 1% p.a. so it’s important to weigh up what option works best for you.
The calculator also assumes a SIC rate of 4% even if the rate is higher - so it may or may not be very useful to you, but acts as a guide.
Here are some other examples with different incomes (based on a three year period):
| FHSS $15,000 Annual Contribution For Three Years ($50,000 Total) | |||
| Taxable income | Annual reduction to take home pay | Deposit available after three years | Additional savings* |
| $50,000 | $10,725 | $39,910 | $7,712 |
| $60,000 | $9,600 | $39,493 | $9,651 |
| $70,000 | $9,650 | $39,655 | $9,567 |
| $90,000 | $9,825 | $39,784 | $9,254 |
| $100,000 | $9,825 | $39,784 | $9,254 |
Source: CSC First Home Super Saver Scheme calculator *assuming a 1% p.a interest rate on a savings account and a 4% SIC rate.
For some people, contributing the maximum $15,000 may not be the right path to take, and that’s okay. You may want to take your time and contribute smaller amounts.
Here are a few examples for different incomes contributing $7,000 over five years.
| FHSS $7,000 Annual Contribution For Five Years ($50,000 Total) | |||
| Taxable income | Annual reduction to take home pay | Deposit available after five years | Additional savings* |
| $40,000 | $5,405 | $32,652 | $5,499 |
| $60,000 | $4,480 | $32,037 | $8,553 |
| $80,000 | $4,585 | $32,214 | $8,187 |
| $100,000 | $4,585 | $32,214 | $8,187 |
Source: CSC First Home Super Saver Scheme calculator *assuming a 1% p.a interest rate on a savings account and a 4% SIC rate.
First home super saver scheme pros and cons
Pros
- You could save thousands in tax.
- You could save for a deposit for your first home quicker.
- You and your partner can both utilise the scheme towards the same house, doubling your deposit funds.
- Time is on your side - you have 12 months to purchase a home with the funds (this can be extended).
- You can pocket the gains and interest made on your contribution. The gains made through your super could be better than what you’d achieve on a savings account or term deposit.
Cons
- By salary sacrificing, you will have less take-home pay.
- It can be a complicated and slow process. The ATO states it can take super funds 15 to 25 business days to release your contributed cash.
- As you can only contribute a maximum of $50,000, this may not be enough to cover a deposit if you wanted to avoid paying LMI. You’ll still have to build up a deposit elsewhere e.g. savings account, term deposit.
- FHSS funds are deemed to earn at the SIC rate (currently 6.9% p.a.), which is higher than a savings account or term deposits (at the time of writing) and potentially higher than what your super fund could achieve. This is a essentially a gamble you make with the ATO as it’s possible for your super fund to not earn this rate of return.
- Super funds often invest in riskier asset classes (especially if you’re young), which can fluctuate more wildly than a relatively safe savings account or term deposit.
Is the First Home Super Saver Scheme worth it?
If you’re looking to save on tax, it very well could be a worthwhile scheme to look into. Concessional super contributions are only taxed at 15% as opposed to your marginal income tax rate, so salary sacrificing some of your income into super can save you some money.
But keep in mind, when it does come time to withdraw the funds and associated earnings for your home deposit, the amount will be subject to a ‘withdrawal tax.’
The ‘withdrawal tax’ is equal to your marginal income tax rate plus the Medicare levy, minus a 30% offset.
Example: 32.5% (marginal tax) + 2% (Medicare levy) = 34.5% - 30% (offset) = 4.5%.
When considering all the government/state schemes out there for first home buyers, you may find one that suits your personal and financial circumstances better. Compared to the First Home Owner Grant (FHOG), the FHSS may seem like a longer way to get into the market as it takes time to save a deposit.
The FHOG gets you the deposit cash boost you need almost immediately worth between $10,000 and $30,000 depending on your state. It’s also a lot simpler to understand.
However, the FHOG is only available per household, whereas a couple using the FHSS could save up to $100,000 if they stuck at it for long enough.
As the scheme can be complex to understand, consider speaking to a financial advisor to see if it’s the right option for you.
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| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Additional Repayments | Split Loan Option | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
5.69% p.a. | 6.16% p.a. | $2,899 | Principal & Interest | Fixed | $0 | $530 | 90% |
| Disclosure | |||||||||||
5.99% p.a. | 5.90% p.a. | $2,995 | Principal & Interest | Variable | $0 | $0 | 80% |
| Promoted | Disclosure | ||||||||||
6.04% p.a. | 6.06% p.a. | $3,011 | Principal & Interest | Variable | $0 | $530 | 90% |
| Promoted | Disclosure |
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