First Home Owners Can Now Use Super for a Deposit on a Home Loan!

In last year’s 2017 budget, the federal government introduced a new measure to help first-home buyers gain a foothold in the property market: The “First Home Super Saver” (FHSS) scheme, which lets individuals use up to $30,000 of voluntary superannuation contributions as a deposit.

It’s a little complicated but if it helps you get into the property market you might find it worth it. Here’s the important information.

The key word here is “voluntary,” as for the measures to apply, an individual must contribute over and above the mandatory 9.5 percent superannuation guarantee.

In other words, it’s little different to saving for a deposit the usual way, except that, depending on your super fund, you may earn greater interest than in a term deposit.

How the super saver scheme works

An individual may make up to $15,000 of voluntary contributions each financial year, with the maximum amount that can be released capped at $30,000 of personal contributions, plus associated earnings.

Voluntary contributions include:

  • Undeducted / non-concessional (after tax) personal contributions
  • Deducted / concessional (before tax) personal contributions
  • Salary sacrifice contributions.

Contributions made under the FHSS scheme are not a new type of contribution. You do not have to notify your super fund that you’re making these contributions, nor do you need to start a new account within your fund.

Sound a bit complicated? This is where a Buyers Agent or a Mortgage Broker can do much of the research and guide you through the process.

Eligibility for the super saver scheme

Only first home buyers may use the scheme — though there are certain exemptions, such as previous financial hardship — and the following must both apply:

  • You live in the premises you are buying or intend to as soon as practical
  • You intend to live in the property for at least six months of the first 12 months you own it, after it is practical to move in.

While you can start making super contributions at any age, you cannot release any funds under the FHSS scheme until you’re 18 years old and have never owned property in Australia — this includes an investment property, vacant land, a commercial property, a lease of land or a company title interest in land.

Eligibility is assessed on an individual basis, which means couples, siblings or friends can each access their own eligible FHSS contributions to purchase the same property.

You can only apply for the release of FHSS contributions once.

Applying to release super saver funds

If you’re ready to receive you FHSS scheme funds, you need to apply to the Commission of Taxation for a FHSS determination and release. (Apply online using your MyGov account.)

Once the Commission approves your application, the ATO will issue a release authority to your super fund requesting they send the FHSS funds to the ATO. It will take at least 25 days for your super fund to release the money and for the ATO to pay it to you.

As such, you should not sign a Contract of Sale on a property before the funds have been released to you. You have 12 months from the time the funds are released to you to purchase a property.

Super saver taxes and fees

From a tax point of view, the super saver scheme is not as generous as it seems. Contributions will be taxed at 15 percent, but withdrawals will be taxed at 30 percentage points below the individual’s marginal tax rate (including the Medicare levy). From 60, withdrawals can be made free — super saver fund can be locked away for up to 40 or 50 years.

Once the funds are released to the ATO, it will withhold tax based on your expected marginal tax rate. When you lodge your tax return, the ATO will know your actual marginal tax rate and will recalculate your tax liability — this could be more or less than the previously estimated amount.

If you don’t purchase a home

If, after 12 months, you haven’t signed a contract to buy or construct a home — note: you cannot use your FHSS funds to buy vacant land; only to pay for the construction of a new home — you can:

  • Apply for another 12-month extension
  • Recontribute the amount back to your super fund (this amount must be a non-concessional contribution and be equal to your assessable FHSS released amount, less any tax withheld. It may be less than the total amounts released to you)
  • Keep the amount, subject to a FHSS tax (a flat tax equal to 20 percent of your assessable FHSS released amounts and not the total amount released).

You must notify the ATO if you sign a contract to buy or construct a home, or if the amount is recontributed back to your super fund; otherwise, you’ll be charged the FHSS tax.

Visit the ATO website to learn more about the First Home Super Saver scheme and determine your eligibility.