What is the first home super saver scheme in Australia?
Published on December 06, 2023
by Clark Stott
Clark Stott has been with Expat Tax Online since 2015. Being a dual national based in the UK, Clark has unique experience helping US citizens (and Accidental Americans) become tax compliant via the Streamlined Tax Amnesty program. Clark likes to help Americans in the UK keep their tax situations as simple as possible to avoid harsh IRS treatment.
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The First Home Super Saver (FHSS) Scheme is an Australian government initiative designed to assist individuals in saving for their first home. This innovative scheme allows future homeowners to use their superannuation funds for a home deposit.
Under the FHSS, individuals can make voluntary contributions to their superannuation fund, which can later be withdrawn for the purpose of purchasing their first home.
Why was the FHSS scheme created?
The FHSS Scheme was created to address the growing challenge of housing affordability in Australia, especially for first-time homebuyers. It has two primary objectives:
- To Enhance Home Affordability: By allowing individuals to save for a home deposit within their superannuation, the FHSS Scheme aims to make the dream of homeownership more attainable. The concessional tax treatment of these savings can lead to a larger deposit in a shorter time frame.
- To Encourage Saving Within Superannuation: The scheme also serves as an incentive for individuals to contribute more to their superannuation funds. This not only aids in saving for a home but also promotes long-term financial security.
How does the FHSS scheme operate?
Here’s how it operates:
- Voluntary Contributions: Participants can make voluntary contributions to their superannuation fund, which is set aside for a future home purchase. These contributions are taxed at a concessional rate, potentially offering tax savings.
- Contribution Caps: There are limits to how much you can contribute under the FHSS Scheme. Individuals could contribute up to $15,000 per financial year, with a total cap of $50,000 across all years. However, if you requested a release before 1 July 2022, when the total limit across all years was $30,000, you can’t make any further requests to take you up to the current $50,000 limit.
- Withdrawal for Home Purchase: When you’re ready to buy your home, you can withdraw these contributions, along with associated earnings to use as your deposit.
The ATO will withhold tax based on either:
- your expected marginal tax rate, including Medicare levy, less a 30% tax offset
- 17% if the ATO is unable to estimate your expected marginal rate.
For US expats in Australia, the FHSS Scheme can be complex, especially when considering the interaction between Australian and US tax laws. It’s advisable to consult with a tax professional who specializes in expatriate tax issues. They can provide personalized advice, ensuring that you meet all eligibility criteria and understand the tax implications of participating in the scheme.
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Who can participate in the FHSS scheme?
Participation in the FHSS Scheme is subject to certain eligibility criteria:
- First Home Buyers: The scheme is intended for individuals who have never owned property in Australia. This includes ownership of any residential property, whether it was an investment, owner-occupied, or a commercial property.
- Residency Requirements: Participants typically need to be residents of Australia for tax purposes, which can be a key consideration for US expats.
- Age Limit: Generally, you must be over 18 to request the release of your savings under the FHSS Scheme.
- Intention to Purchase: You must intend to live in the property for at least six months within the first 12 months of ownership.
- Eligibility for US Expats: US expats can participate in the FHSS Scheme, provided they meet the above criteria. However, it’s important for US expats to consider how their participation in the scheme might interact with their US tax obligations. The US taxes its citizens on their global income, and there could be implications for contributing to and withdrawing from the FHSS Scheme.
Given the complexities involved, especially for US expats who must navigate both Australian and US tax laws, consulting with a tax professional experienced in expatriate tax issues is highly recommended. They can provide tailored advice to ensure that you maximize the benefits of the FHSS Scheme while remaining compliant with all relevant tax laws and regulations.
What are the contribution types for the FHSS scheme?
The FHSS scheme accepts voluntary contributions, which can be either concessional (before-tax) or non-concessional (after-tax).
However, the cap on non-concessional contributions in the context of the Australian superannuation system is separate from the First Home Super Saver (FHSS) Scheme cap. Non-concessional contributions are personal contributions made into your super fund from after-tax income, for which you do not claim a tax deduction.
- Cap Amount: The annual cap for non-concessional contributions is $100,000. However, if you are under 65 years of age, you may be able to bring forward two years of contributions, allowing you to contribute up to $300,000 over a three-year period, depending on your total super balance.
- Total Super Balance Impact: Your ability to make non-concessional contributions is also affected by your total superannuation balance. If your total super balance is equal to or exceeds the general transfer balance cap ($1.7 million from 2021–22, $1.9 million from 2023–24), you are not eligible to make non-concessional contributions without exceeding the cap.
- Age Considerations: The ability to make non-concessional contributions reduces as you get older. For instance, once you reach 67 years of age, you can only make non-concessional contributions if you meet the work test or work test exemption criteria.
When and how can you withdraw from the FHSS scheme?
Withdrawing your savings from the FHSS Scheme to buy your first home involves a specific process:
- Eligibility for Withdrawal: You can request a release of your FHSS contributions once you’re ready to purchase your first home. To qualify, you must intend to live in the property for at least six months within the first 12 months of ownership.
- Application Process: The withdrawal request is made through the ATO. You need to apply for a determination and then request a release of your funds.
- Taxes: The withdrawn amount includes your contributions and associated earnings. The taxable portion of the released amount is included in your income tax assessment for the year of withdrawal, but you’ll receive a 30% tax offset. Concessional contributions released are taxed at your marginal rate, while non-concessional contributions are tax-free.
For US expats living in Australia, participating in the FHSS Scheme can be a smart financial move. However, it’s important to consider how this interacts with your US tax obligations. Consulting with a tax professional experienced in both Australian and US tax laws can help ensure that you maximize the benefits of the FHSS Scheme while remaining compliant with all tax regulations, both in Australia and the US
What types of properties qualify for the FHSS scheme?
The First Home Super Saver (FHSS) Scheme in Australia is designed to assist individuals in purchasing their first home, but it’s important to know what types of properties qualify. Here are the key criteria:
- Residential Properties: The scheme is intended for residential properties. This includes new and existing houses, apartments, townhouses, and similar dwellings.
- Location Within Australia: The property must be located in Australia. Properties outside of Australia do not qualify for the FHSS Scheme.
- Owner-Occupied Requirement: To qualify, you must intend to occupy the property as your primary residence for at least six months within the first 12 months of ownership.
Can the FHSS scheme be combined with other home-buying assistance?
One of the advantages of the FHSS Scheme is its potential to be combined with other home-buying assistance programs, offering a more comprehensive approach to purchasing your first home:
- State-Based First Home Owner Grants: Many Australian states offer additional grants and concessions for first home buyers. These can often be used in conjunction with the FHSS Scheme.
- Stamp Duty Concessions: Depending on your state or territory, you may also be eligible for stamp duty concessions as a first home buyer.
- Lender’s Mortgage Insurance (LMI) Benefits: Some programs offer reduced LMI for first-home buyers, which can be an added advantage when combined with the FHSS Scheme.
Utilizing the FHSS Scheme can be a significant step towards homeownership. However, it’s important to consider how this scheme fits into your overall financial plan, especially in relation to US tax obligations. Consulting with a tax professional who has expertise in both Australian and US tax laws can provide clarity and ensure that you make the most of the FHSS Scheme and other home-buying assistance programs.
The information provided herein is for general informational purposes only and should not be considered professional advice. While we aim to provide helpful and accurate information, we make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained here or linked to from this material.
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