10 questions about the scheme answered

The FHSS scheme can help first-time buyers build their savings to get on the property ladder

Q How do I know whether I’m eligible for the First Home Super Saver (FHSS) scheme?

Eligibility for the FHSS is assessed on an individual basis. That means a couple purchasing a joint property can access their own eligible FHSS contributions. One person’s ineligibility will not affect the other party’s eligibility.

You can start to make contributions from any age. However, to access the funds you need to be over the age of 18. To be eligible for the FHSS you must:

• Have never previously owned property in Australia, including an investment property, or commercial property, or vacant land, a lease of land or a company title interest in land (unless the Australian Taxation Office deems that you have suffered a financial hardship, although it would be best to determine this before you start contributing).

• Have not previously participated under the scheme.

• Have either lived in or intend to live in the premises you are buying as soon as possible.

• 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.

• Do not use the FHSS amounts to purchase any premises incapable of being occupied as a residence, such as a houseboat, motor home or vacant land. ANDREW YEE

Q How much will I save using the FHSS scheme compared with just putting the money in a savings account?

Average wage earners can benefit by about $5000 if they are able to make the maximum contribution of $30,000 over two years (for example, $15,000 a year).

The benefit accrues from the tax saving when you use concessional contributions, such as salary sacrifice to hit the $30,000 maximum. Because only 15% super tax is applied to these contributions, compared with personal marginal rates of 32.5% (plus 2% Medicare) or higher, you lose less tax on that income. Further, the tax taken at withdrawal is lower than your marginal tax rate because the FHSS applies a 30% offset on the withdrawal of concessional contributions and associated earnings.

The combination of these tax concessions also means that if you take a little bit longer to hit the maximum $30,000 saving limit – say, for example, $10,000pa over a three-year window – the benefit doesn’t reduce. It can actually be a bit higher because of the effect of less tax being taken from your compounding interest! NERIDA COLE

Q How do I set up the arrangement and contribute?

You can just start contributing either by making a personal contribution to your super fund or establishing a salary sacrifice agreement with your employer, if they allow for it. You can contribute to any superannuation fund (and more than one super fund). However, those made to a defined benefit interest or a constitutionally protected fund will not be eligible to be released under the FHSS scheme. In the end, it is the ATO and not the super fund that decides what counts towards the FHSS, calculating the amount of FHSS contributions and their associated earnings. Before you do start saving, you should:

• Check that your nominated super funds will release the money.

• Ask your fund about any fees, charges and insurance implications that may apply.

Be aware of the tax implications. Receiving FHSS amounts will increase your personal taxable income for the year that you make the request to release.

ANDREW YEE

Q What is the maximum amount that I can contribute?

The maximum annual contribution under the FHSS is $15,000 with an overall maximum of $30,000. But the annual contribution for FHSS purposes must also be within the overall superannuation contribution limits. The one you need to be most careful of, however, is the $25,000 annual concessional contribution limit because that also includes the employer super guarantee (SG) contributions. If your employer pays the standard SG amount of 9.5% of salary and you earn more than $105,000, you may need to reduce the level of annual FHSS contribution to below $15,000.

Otherwise when you combine it with your employer’s SG, you will exceed $25,000 in overall annual contributions. You can check with your super fund what your employer’s SG contributions are and also if you have received any other type of concessional contributions in the past that may need to be accounted for.

NERIDA COLE

Q What return will I get on my investment?

Regardless of the actual (real) performance of your total super fund, for the FHSS component your returns will be calculated using a “deemed rate of return”. This is based on the 90-day bank bill rate plus 3% and is calculated every quarter. The deemed rate for every quarter is published on the ATO website. For the July-September 2018 quarter, the deemed rate is 4.96%. This is around double what a typical online savings account is paying in interest right now.

DANIEL COHEN

Q How am I taxed?

Voluntary contributions into super include the amounts your employer pays into super on your behalf, any amounts you salary sacrifice or any amounts you pay into super and claim a tax deduction for through your tax return. Your voluntary contributions cannot exceed $25,000 a year and are taxed concessionally.

By way of example, say you salary sacrifice $15,000 into super, you’ll reduce your taxable income by $15,000, saving tax at your marginal rate. If you’re a typical taxpayer on the 32.5% income tax rate, that means you’ll save $4875 in income tax (the saving is greater for higher income earners who pay tax at higher rates), meaning that the contribution has actually “cost” you just $10,125.

The super fund will pay tax at a flat rate of $15% on the contribution, which equates to $2250, leaving $12,750 after tax in the fund. When the after-tax contribution is withdrawn, it will be taxed at your mar-

ginal rate less a tax offset of 30%, which in our example equates to a 2.5% tax charge, or $318.75 (ignoring any growth in the fund that might have occurred over the period the amount was invested).

In simple terms, then, you’ve spent $10,125 on the contribution and got back $12,431.25 to put towards your house deposit, a benefit to you of $2306.25 in relation to just one year’s contribution.

MARK CHAPMAN

Q Can both my partner and I use the FHSS to save?

One of the great features of the FHSS is that eligibility is assessed on an individual basis. What this means is that both you and your partner can use the FHSS to save for your first home ($30,000 cap each), assuming you each meet the eligibility criteria. If your partner has owned a property before and you have not, you can still use the FHSS to save for your first home even if your partner is co-buying that property with you. However, your partner will not be able to use the FHSS in this instance. DANIEL COHEN

Q When can I withdraw my money and how do I do it?

Withdrawals from the FHSS must be made under the ATO’s two-step release process before you sign a contract on a property, and the money needs to be used for a deposit within 12 months of release. (A question in the next column talks about what you can do if you haven’t found a property and you are getting close to the 12-month limit.)

Your first step is to apply for a determination which sets out what the tax office has calculated is the maximum amount it will release. After reviewing the determination, including checking the contributions are correctly classified (for example, as concessional if your intent is to claim them as a tax deduction), the second step is to apply to the ATO to release your desired amount. You can request a determination as many times as you like but you can request the release of your money from super for FHSS purposes only once.

The ATO will get your super fund to release the money to it within 25 days, withholding the tax it needs to, before paying the net amount to you.

NERIDA COLE

Q Is there a maximum amount I can take out?

You can take out a maximum of $30,000 of accumulated contributions but no more than $15,000 of that can relate to the contributions from any one financial year. In effect, then, you need to have made at least two years’ worth of contributions at the annual maximum of $15,000 before you can withdraw the maximum $30,000.

Your super will also receive any extra amount that corresponds to the earnings on those contributions.

If you’re part of a couple and you both meet the eligibility criteria, you can jointly draw a maximum of $60,000.

MARK CHAPMAN

Q What if I withdraw the money and can’t find a property I want to buy or change my mind?

If you haven’t bought a property within the 12 months, you have three options.

You can keep the released amount but it will be subject to an additional 20% (called the FHSS tax) on the assessable FHSS released amount. That could be $5000$7000 depending on the level of earnings involved, completely wiping out all the tax savings from using the FHSS. •

You can put the money back into your super fund. This won’t cost you any tax but you won’t be able to get the funds out of super until retirement. •

The most practical option for most situations is expected to be applying for an extension of time – you can request another 12 months (24 months in total). This can give you time to keep looking and saving outside super, or if your situation has changed the extra time may allow you to think through other options before you give up access to the funds or pay more tax. NERIDA COLE

Visit moneymag.com.au/fhssquestions for the answers to more questions about the scheme including whether your employer’s contributions count towards your deposit, if lenders will count this as your deposit, whether you’ll still be eligible for the First Home Owners Grant if you use the FHSS scheme, whether you’re eligible if you’re self-employed and what happens if you’re buying a property with someone else and they have owned a property before.