The First Home Super Saver Scheme (FHSS): A Finance Broker’s Perspective

For many Australians, the dream of owning a home feels increasingly out of reach, with rising property prices and increasing living costs making it difficult to save for a deposit. However, the Australian government has implemented initiatives to help first-time homebuyers, one of which is the First Home Super Saver Scheme (FHSS). As a finance broker, I often advise clients on the benefits and complexities of this scheme and how they can use it effectively to enter the property market.

What is the FHSS Scheme?

The First Home Super Saver Scheme (FHSS) was introduced by the Australian government in 2017 to assist first-time homebuyers in saving for a home deposit through their superannuation fund. The main advantage of this scheme is that it allows individuals to make voluntary concessional (before-tax) and non-concessional (after-tax) contributions to their super, which they can later withdraw to purchase their first home. Since superannuation is a tax-effective vehicle, this allows buyers to save faster and more efficiently compared to a traditional savings account.

How Does the FHSS Work?

1. Making Contributions: Individuals can make voluntary contributions of up to $15,000 per financial year, with a total cap of $50,000 (previously $30,000 before July 1, 2022).
2. Tax Advantages: Concessional contributions (such as salary sacrifice) are taxed at 15%, which is typically lower than most individuals’ marginal tax rates, resulting in tax savings.
3. Earning Interest: The funds grow within the superannuation account, benefiting from investment earnings.
4. Withdrawing Funds: When ready to purchase a home, individuals can apply to withdraw their savings, including the earnings generated on those contributions.
5. Purchasing a Home: The withdrawn amount must be used to buy or build a first home within 12 months (extensions may be granted).

Example Scenarios

Example 1: Sarah’s FHSS Journey

Sarah, a 27-year-old marketing professional, wants to buy her first home in Sydney. She decides to contribute $10,000 per year for three years through salary sacrifice, totaling $30,000 in voluntary contributions. Due to the concessional tax rate of 15%, she saves significantly on taxes compared to saving in a standard savings account. When she applies for withdrawal, she can access her $30,000 contributions plus the earnings, helping her secure the deposit for her first home.

Example 2: James and Lisa’s Combined FHSS Savings

James and Lisa, a couple in Melbourne, both decide to utilize the FHSS scheme. James contributes $12,000 per year, and Lisa contributes $8,000 per year for four years. Together, they save $80,000 plus additional earnings from super. When they withdraw their funds, they have a strong deposit for their first home, benefiting from tax savings and investment growth.

Key Benefits of FHSS

• Tax Efficiency: By using concessional contributions, individuals can reduce their taxable income while saving for a home.
• Faster Savings Growth: Compared to a regular savings account, funds within superannuation often generate higher returns due to diversified investment options.
• Government Support: The scheme provides additional incentives for first-home buyers looking to enter the property market.
• Flexible Contributions: You can contribute through salary sacrifice or make after-tax contributions, depending on what suits your financial situation.

Who is Eligible for FHSS?

To qualify for the FHSS, an applicant must:

• Be 18 years or older
• Have never owned property in Australia before (exceptions apply for financial hardship cases)
• Have not used FHSS previously
• Be intending to live in the property for at least 6 months within the first 12 months of ownership

The Withdrawal Process

When an individual is ready to purchase a home, they need to apply to the Australian Taxation Office (ATO) for a determination of the amount they can withdraw. The ATO will calculate the maximum releasable amount, including both contributions and earnings, and issue a release request to the super fund. Once funds are released, the individual must use them within 12 months to purchase a home.

Considerations & Potential Pitfalls

While the FHSS scheme offers significant benefits, there are some factors to consider:

• Withdrawal Delays: The process of withdrawing funds from superannuation may take several weeks, which could delay the home-buying process.
• Contribution Limits: The yearly cap on voluntary contributions means buyers must plan their savings strategy well in advance.
• Superannuation Restrictions: If a person does not end up using the FHSS amount for a home, the funds remain in superannuation until retirement.
• Market Risks: Since funds are invested, their value may fluctuate, affecting the final amount available for withdrawal.

FHSS vs. Other Homebuyer Schemes

The FHSS can be used in conjunction with other first-home buyer assistance programs such as:

• First Home Owner Grant (FHOG) – A state-based grant to help first-time buyers.
• Stamp Duty Concessions – Many states offer reduced or waived stamp duty for eligible buyers.
• First Home Guarantee (Formerly FHLDS) – Allows eligible buyers to purchase with as little as a 5% deposit without paying Lenders Mortgage Insurance (LMI).

Is the FHSS Right for You?

For many first-home buyers, the FHSS is an effective way to accelerate their deposit savings. However, it’s important to evaluate individual circumstances before committing. As a finance broker, I advise my clients to consider their income, tax position, and homeownership timeline to determine whether FHSS aligns with their financial goals.

If you are considering using the FHSS scheme, I recommend consulting with a finance broker or tax specialist to ensure you maximize the benefits and avoid potential pitfalls. With the right strategy, the First Home Super Saver Scheme can be a valuable tool to help Australians achieve homeownership sooner.

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