What your clients need to know about the First Home Super Saver scheme

The First Home Super Saver (FHSS) scheme was introduced in the Federal Budget 2017-18, with an aim to reduce pressure on housing affordability. The scheme allows eligible taxpayers to save money for their first home inside the superannuation system. The government says this concessionally taxed environment will help first home buyers save faster.

Your eligible clients should however be made aware that some changes have occurred to the FHSS scheme (more details here). The changes apply retrospectively to valid FHSS release requests and contracts entered into on or after 1 July 2018.

Note also that SMSF members must ensure that their fund’s trust deed allows for the release of funds to members as is drafted in the FHSS scheme.

The ATO notes that for individuals intending on purchasing their first home over the Christmas and January 2020 period, it is recommended to request a FHSS determination and make a release request as soon as possible.

How it works
Under the scheme, a taxpayer can make voluntary concessional and non-concessional contributions into their super fund to save for a first home. This applies from 1 July 2017. Then, from 1 July 2018, they can apply to release these voluntary contributions (along with related earnings), in order to help buy a home.

First home buyers must also meet the following conditions. They must:

  • either live in the premises, or intend to as soon as is practicable
  • intend to live in it for at least six months within the first year of it being owned, after it is practical to move in.

The scheme allows for a maximum of $15,000 of these voluntary contributions from any one financial year to be released, up to a total of $30,000 across all years. Earnings related to these amounts are also available.

There are however certain limits in percentage terms on withdrawals. Your client can withdraw, taking into account the yearly and total limits:

  • 100% of non-concessional (after-tax) amounts
  • 85% of concessional (pre-tax) amounts.

Eligibility
Contributions can be made at any age, however the release of funds or even requesting a determination about amounts under the scheme is limited to those 18 years and older. Also, scheme users must have:

  • never owned Australia property, including an investment property, vacant land, commercial property, a lease of land in Australia, or a company title interest in land in Australia (there’s an exception for financial hardship)
  • not made a previous request to release funds under the FHSS.

Eligibility is assessed on an individual basis. This means that couples, siblings or friends can each access their own eligible FHSS contributions to purchase the same property. If any have previously owned a home, it will not stop anyone else who is eligible from applying.

Type of contributions accepted
Your client can make the following existing types of contributions towards the FHSS scheme:

  • voluntary concessional contributions – including salary sacrifice amounts or contributions for which a tax deduction has been claimed (usually taxed at 15% in the super fund)
  • voluntary non-concessional contributions they have made – these are made after tax or if a tax deduction has not been claimed.

Your client can contribute up to their existing contribution caps. Having amounts released under the FHSS scheme does not affect the calculation of concessional or non-concessional contributions for cap purposes. That is, contributions still count towards they’re contribution caps for the year they were originally made.

Important things to know
There are other important things your client will need to know. These include:

  • They should request the release of FHSS amounts around the same time they start their home buying activities – for example, when applying for a home loan.
  • After they have requested the release, it may take between 15 and 25 business days to receive the money.
  • They must apply for and receive a FHSS determination from the ATO before signing a contract for the first home or applying for release of FHSS amounts.
  • If they’ve already received a determination and signed a contract to purchase or construct the home, they must make a valid release request within 14 days of entering into that contract. They can also sign the contract after they make a valid release request.
  • The home must be located in Australia.
  • They can only apply for release of FHSS amounts once.

FHSS scheme users have 12 months from the date they make a valid request for release of FHSS amounts to do one of the following:

  • sign a contract to purchase or construct their home – they must notify the ATO within 28 days that they have signed the contract
  • recontribute the assessable FHSS amount (less tax withheld) into their super fund – they must notify the ATO within 12 months of the release request date that they have recontributed.

If your client doesn’t notify the ATO that they have done one of the above, or they keep the FHSS money, they will be subject to an FHSS tax. This is a flat tax equal to 20% of their assessable FHSS released amounts. This may not be the same as the total amount released.

Further guidance is available in the Guidance Note GN 2018/1.  This includes information on applying for funds release, requesting a determination, completing a subsequent tax return, notification requirements and more.

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