The First Home Super Saver Scheme (FHSSS) is intended to assist individuals entering the property market by allowing them to save on tax and receive higher earnings than if the money was invested in a bank account.
What is the scheme?
From 1 July 2018, an eligible member may apply to withdraw certain contributions (and their associated earnings) from the superannuation system for the purposes of purchasing their first home (and not for the acquisition of furniture for example).
It is a single use system only, available per taxpayer (and not per superannuation fund).
Eligibility of member
Broadly speaking, to take advantage of the FHSSS, the individual must be an adult member of a superannuation fund who does not currently own or have previously owned any type of real property.
An exception will be included in the yet-to-be-released regulations dealing with circumstances where a member previously suffered financial hardship that resulted in a loss of ownership of a property interest (e.g. bankruptcy, divorce, loss of employment, etc).
Only eligible contributions can be withdrawn from the superannuation system under the FHSSS. Eligible contributions are contributions which were voluntarily made by the member since 1 July 2017 and include personal contributions by the member as well as employer contributions in excess of the superannuation guarantee (e.g. salary sacrifice contributions).
The maximum amount (being comprised of eligible contributions and their associated earnings) that can be withdrawn is capped at $30,000 across all years however only the first $15,000 of eligible contributions made in a single financial year are counted (an example will illustrate this below). This $30,000 cap is not in addition to existing contribution caps.
In order to maximise the release amount, the legislation incorporates priority rules dictating the order in which contributions are counted. This is relevant as a member can only withdraw 85% of their concessional contributions as opposed to 100% of their non-concessional contributions.
Pursuant to these rules, contributions are counted in the order in which they are received by the fund (earliest to latest) and if concessional and non-concessional contributions are received on the same day, the non-concessional contribution is counted first.
Lucy is employed and her fund has received the following contributions in the 2018/19 financial year.
Lucy’s employer: $6,000 of super guarantee contributions (non-eligible)
Lucy’s employer: $18,000 (salary sacrifice on 20 June 2019) (eligible)
Voluntary non-concessional contributions: $10,000 (on 1 November 2018) (eligible)
The super guarantee contribution is disregarded as it is not a voluntary contribution. The non-concessional is counted first (as first in time) and only $5,000 of the salary sacrifice contribution is counted to make up the difference to the $15,000 annual cap.
The process that a member has to follow to access payment is quite complex. It includes requesting the ATO for a FHSSS Determination via MyGov, the ATO issuing a FHSSS Determination to the member and the member choosing to act on the Determination by requesting a FHSSS release authority. The authority is then served on the trustee of the superannuation fund who pays the amount to the ATO. The ATO will deduct any tax payable before releasing the amount to the member (within 25 business days of approval).
The member then has 12 months to utilise the FHSSS amount from the date of receipt (an extension may be requested).
The FHSSS amount will be included in the member’s tax return and taxed at their marginal tax rate minus a 30% offset.
Conditions to be met
In addition to the above process, there are multiple conditions that a member must meet once they have received the FHSSS amount to avoid adverse tax consequences.
entering into a contract to purchase or build residential premises after the release (it cannot be vacant land or a caravan for instance) within 12 months of receipt of the FHSSS amount;
the price of purchase or construction to be at least equal to the FHSSS amount; and
occupying or demonstrating a genuine intention to occupy the premises, and doing so for at least 6 of the first 12 months.
The ATO must be notified that all of the above conditions are satisfied within 28 days after execution of the contract.
What if amount is not (fully) used?
In this situation, options for the member are to:
apply for an extension for a further 12 months; or
make a non-concessional contribution equal to the unused FHSSS amount within the relevant period and advise the ATO.
If the member fails to do either of the above, a 20% tax will apply on the unused portion of the FHSSS release, including on the unused associated earnings. The member will be allowed to keep the amount.
What should members do?
Members should first consider whether the scheme is worth the effort – the above rules are complicated and one oversight could have detrimental consequences. A comparison tool is available at https://www.budget.gov.au/estimator/.
If the member decides to proceed, it is important to ensure all of the intended contributions have been received and that they time the request right as they only get one chance. Once a release authority has been issued the member is no longer eligible for the scheme (regardless of whether the member used the FHSSS amount or not). While the amount of contributions that can be withdrawn is capped, there is no limit on the associated earnings of that amount – so delay in acting may allow a member to take out a greater amount.
Consider pooling resources as couples, siblings or friends can access they own eligible FHSSS contribution to purchase the same property.
Check the fund’s trust deed to ensure the use of the scheme is authorised by the rules. If not, an amendment will be necessary.
Get your superannuation compliance documentation sorted to comply with your trustee obligations under the superannuation laws.
By Julie Hartley, Associate
3 August 2018