Benefits of the First Home Super Saver Scheme (FHSSS)

Tahni Davison is a Financial Adviser with Gilkison Group.

Saving for your first home can be a challenging task, especially in the current environment of high house prices and low interest rates on savings accounts. Some may question if it is even worth it if house prices continue to increase whilst you work towards your target deposit, meaning you can afford less of a home than when you started saving by the time you reach that goal.

This is where the First Home Super Saver Scheme (FHSSS) government initiative can come into play and help first home buyers save for their first home. Since 1 July 2017, the government has allowed you to make voluntary concessional (before-tax) and voluntary non-concessional (after-tax) contributions into your super fund to save for your first home. This can provide you with extra incentives to save by offering tax deductions or reduced tax when you make personal deductible or salary sacrifice contributions. In addition to paying less tax, you can potentially receive a higher rate of earnings on the funds compared to a general savings account too.

Through the FHSSS, you can currently apply to have a maximum of $15,000 of your eligible voluntary contributions from any one financial year released, up to the total of $30,000 contributions across all years, plus the amount of earnings that relate to those contributions. From 1 July 2022, the amount of eligible contributions that can count towards your FHSSS maximum releasable amount across all years will increase from $30,000 to $50,000. The amount of eligible contributions that can count towards this total for each financial year will however remain at $15,000.

It’s important to note that associated earnings are calculated on these contributions using a deemed rate of return – this is based on the 90-day Bank Bill rate plus three percentage points. This currently equals a total return of 3.07%pa.

Tax benefits will depend on your individual marginal tax rate and whether you made before-tax contributions or after-tax contributions. A tax offset of 30% will apply to concessional contributions. The offset cannot be refunded, transferred or carried forward. The ATO will withhold tax that will be calculated at either:

your marginal tax rate less a 30% offset, or
17% if the ATO is unable to estimate your expected marginal rate.

Where the amount of tax deducted exceeds your marginal tax rate, this will be rectified through your tax return.

Example Scenario:

Say you are earning $60,000. You want to put $10,000 of that salary (pre-tax) towards your home deposit. If you pay tax on that as normal and then put it in a normal bank savings account, you will pay around $3,250 of the $10,000 in tax.

Now, if you put that $10,000 in the FHSSS Account B instead, you will be taxed at just 15%. This means you will only pay around $1,500 in tax. That’s a substantial amount of extra money towards your first home instead of towards your tax bill.

When you withdraw your money, you will get taxed at your marginal tax rate of 32.5% minus an offset of 30%. In effect, you’ll also pay 2.5% tax when you withdraw your money. This loss will be cancelled out somewhat by the fact that Account B earns above 3% interest while you have your money in it which, again, is better than most regular bank accounts.

Considering the FHSSS for yourself or pursuing it for your child? There are always pros and cons to consider, we recommend you reach out to your adviser for personalised assistance.