In this article:
How the First Home Super Saver Scheme works
With residential property unaffordable for many Australians at the moment,
the government is keen to address the issue and score some political
points. Enter the First Home Super Saver Scheme (FHSSS).
What you need to know
- You make voluntary concessional and
non-concessional contributions into your superannuation fund to save for
your first home.
- When you're ready to buy, you apply to release your contributions along with
- Interest earned on money saved in a bank account is taxed at your
marginal tax rate. Money put into your super account as a pre-tax
contribution is subject only to the 15% contributions tax.
- The tax amount you can save will vary depending on your situation.
- You must request and have your funds released by the Australian Tax
Office (ATO) before signing a contract to buy your first home or you may
have to pay FHSSS tax. It can take up to five weeks to have your money
released by the ATO.
- Most taxpayers earning more than $37,000 will get some tax benefit from the scheme.
How the FHSSS earns you more money
If all that talk of voluntary concessional and non-concessional contributions has you confused, you're not alone. Read our case study of a couple who were so overwhelmed by the paperwork and rules they regret giving it a go.
Put simply, the FHSSS is centred on tax minimisation and increasing the earning power of your money, since the extra money you put in and any earnings are taxed at the super concessional rate of 15%, making it a pretty good savings and investment plan depending on your financial circumstances.
Most of us pay considerably more than 15% tax on our earnings, with average income earners paying 32.5%. More than halving your tax burden can really make a difference, as many
multinational companies headquartered in low-tax countries seem to have
But the FHSSS is a government program, after all, which means there are hoops
to jump through.
Nevertheless, Greg Everett, general manager of GuildSuper, tells us the
FHSSS is a far better option than a standard term deposit or bank account
for saving for a first home.
"If you were to use a standard bank account to save for your deposit, the
money you'd put in would be after you've paid tax at your marginal tax
rate, and the interest you earn would also be subject to tax at your
marginal tax rate," Everett explains.
"If you put the money into your super account as a pre-tax contribution
instead, then you would only pay 15% contributions tax, which is a lot
lower than what you're probably paying in income tax."
This means those on a marginal tax rate of 45% will pay around 17% tax on
the withdrawal. If your tax rate is 32.5%, you'll pay minimal tax on the
"When you make a request and ultimately make a withdrawal from your FHSSS
it will be taxed at your marginal tax rate, less a 30% tax offset," says
Kane Munro, director of Accountancy Online.
Will the scheme work for you?
Most taxpayers earning more than $37,000 will get some benefit.
"If you earn under this amount then there's likely to be little benefit in
the First Home Super Saver Scheme from a tax break perspective," Munro says. "That said,
the interest is set at a slightly better rate than a standard term deposit
account, and also it is enforced and automatic savings which can be a good
thing for those that struggle to save."
For comparison, the ATO has currently set the interest rate for withdrawals
from the FHSSS at 4.96% (it's calculated using something called the
shortfall interest charge rate), while the five-year term deposit interest
rate range is 3.00% to 3.5% at the moment.
Using the government's First Home Super Saver Scheme estimator, Everett provides this simple scenario:
Let's say you earn $50,000 p.a. and salary sacrifice $5000 p.a. into your
super account, reducing your take-home pay by only $3200 because of the
tax savings (though it's worth pointing out that any contributions must be
within existing superannuation contribution caps).
This translates to an estimated $27,639 available for a deposit under the
FHSSS after saving for six years, or $7795 more than if you parked your
money in a standard deposit account.
So will the FHSSS get you a home?
On its own, probably not. Munro points out that the maximum withdrawal
under the scheme is $30,000 per person, plus any interest earned.
When you make your withdrawal, you'll get 100% of non-concessional – or
after tax – contributions, but only 85% of concessional contributions, as
the 15% tax is taken at the time of withdrawal.
This means the maximum release for concessional contributions is $25,500,
plus any earnings. If you're buying as a couple, you'll be able to withdraw a total of
$60,000 plus earnings.
That's good money, but most lenders require a 10% deposit at minimum, and
you'll need to cough up 20% if you want to avoid paying for lender's
mortgage insurance (which ensures that the bank isn't left in the lurch if
you can't make your monthly mortgage payments).
National median housing prices are sitting around the $809,000 mark, meaning you'd need up to $80,000 to dive into the lower end of the market, and $160,000
to avoid lenders mortgage insurance.
At best the FHSSS can provide a bit of welcome help.
Then there's the issue of having the financial leeway to put more of your
pre-tax salary into your super account. You can contribute an extra $15,000
to your FHSSS account per year – if you can get by with that much less take-home pay minus any taxes.
"If we could go back in time we wouldn't have done it"
Understanding the intricacies of the FHSSS can be difficult for the average
first home buyer, and the money is slow to be released – which is a problem
when you've found the right property and need to sign contracts as soon as
Young professional couple Patrick and Alison decided to use the scheme, as
it was promoted as an 'easy' way to boost savings. For them, the process of trying to understand exactly how it all would work
was overly complex, despite doing a lot of research.
Patrick says they struggled to wrap their heads around what concessional
and non-concessional contributions were, what tax offsets meant, how to
claim super contributions as tax deductions, and all the other FHSSS-specific conditions.
"As young people whose experience in super and taxes amounts to ticking
some super boxes on an employee contract and filling out a basic tax
return, this was a huge learning curve!," says Patrick. "My wife and I are in professional
industries and complex concepts aren't foreign to us – [but] I feel for the
majority of first home buyers, including us, the FHSSS process is too
complicated, and will never be a success."
Requesting funds not an easy process for some
While he says the process of setting it up through their employers was very
simple, they are one of the first wave of Aussies now requesting a release
of their funds (this has only been possible since 1 July 2018), and this
part has been anything but simple.
"It can take up to 25 business days from the time you request a release to
receiving it, and you are not allowed to sign a contract in that time or
you will be taxed on the benefit you received in the next financial year.
We are still waiting to receive ours which we requested to be released four
weeks ago," says Patrick.
"We're going to be signing a contract tomorrow because the right house came
along. We're privileged enough to be able to buy now as we have help from
our parents. Unfortunately, because we're signing before it has been
released to us, we will more than likely be taxed the FHSSS tax. We've been
through all this and we likely won't even receive any benefit. If we could
go back in time, we wouldn't have done it."
When to access your money
We talked to the ATO about the length of time it can take to receive money
and how to make this work in line with the far faster-paced buying process.
They noted that while you can't sign a contract to buy or build
before receiving your funds, if you want to avoid paying the FHSSS tax
(equal to 20% of your assessable FHSSS-released amounts), you do have 12
months (with a possibility of extending a further 12 months to a total of
24 months) from receiving funds to make a purchase.
In short, don't request the release of funds before you're ready to buy.
Do your homework and get a feel for the market and what you want first and
consider applying for the release before you start looking with serious intent to
More about the FHSSS
While the FHSSS only goes partway towards solving the problem of
coming up with a first home deposit, any help is better than none. Here's some more detail on how the scheme works.
You must be a first home buyer, and you'll need to be over the age of 18 to
request a release of your funds (though you can contribute from any age).
This means you've never owned property in Australia, including an
investment property, vacant land, commercial property, a lease of land in
Australia, or a company title interest in land in Australia.
You must intend to live in the premises you're buying as soon as
practicable, and you must live in the property for at least six months of
the first 12 months you own it.
You can withdraw a maximum of $15,000 of your voluntary contributions from
any one financial year and up to a total of $30,000 contributions across
all years, plus associated earnings. But it's not as simple as that, since whether the contribution came from your pre- or post-tax income will
influence the amount available. You can withdraw 100% of your
non-concessional (after-tax) contributions or 85% of concessional (pre-tax)
The first step is to call your superannuation fund. Confirm your nominated
super fund will release the money, and ask about any fees, charges and
insurance implications that may apply.
Your next step is to ask your employer about salary sacrificing (talk to
your HR department if you're not sure).
You can let your employer know the amount of your salary to be deducted,
and it's then sent straight to your super fund. This is considered a
If your workplace doesn't offer salary sacrificing, you can still access
the scheme. You can make after-tax voluntary contributions, meaning this is
not subject to tax upon withdrawing it. However, it means you won't be taxed the lower 15% rate on super contributions – you'll pay your full income tax rate. If you're self-employed, then you
can make contributions directly to your fund from your post-tax income.
Contact your fund and organise how to pay – it may be direct debited
automatically, or you may be sent BPay details, for example.
No. You can make the following types of contributions towards the FHSSS
voluntary concessional contributions – including salary sacrifice
amounts or contributions for which a tax deduction has been claimed.
These are taxed at 15%
voluntary non-concessional contributions that you've made – these are
made after tax or if a tax deduction hasn't been claimed.
There are limits to the amount of salary sacrifice contributions that can
be made. A person can make up to $25,000 p.a in concessional contributions
(pre-tax contributions) which also includes your employer's compulsory contributions.
You can also make contributions from your after-tax pay, though you won't
get a tax concession upfront. You may also be eligible to receive a
government co-contribution if you earn under $51,813 per annum.
There are some key details you'll need to be aware of to avoid locking your
money into the scheme. First up, you can only apply for release once.
You also need to wait to sign your contract to buy or build your
home until after the funds have been released – failing to do so could see
you liable to pay FHSSS tax. It takes around 25 business days for you to
receive your money after you've been approved.
To release funds, you need to apply for a:
- determination – this will tell
you what you have available to withdraw if you were to do so right now. You can apply for a determination as often as you like, and you'll be given your maximum FHSSS release amount.
- release, which can be done
using your myGov account linked to the ATO.
If you withdraw the funds and don't end up buying a qualifying home within
the 12-month timeframe (you can also apply for a 12-month extension), you
must re-contribute the assessable FHSSS released amounts, minus any tax
that's been deducted within the 12 months period. Any
non-concessional contributions released will not have to be re-contributed.
Once returned, these funds cannot be accessed again under the scheme.
Should you choose to keep the money, it will be subjected to a FHSSS tax,
equal to 20% of your assessable FHSSS released amounts.