First Home Super Saver (FHSS) scheme

In this episode of “Exploring Super”, we focus on the First Home Super Saver (FHSS) scheme and how it works.

We discuss how tax works through the scheme, along with eligibility criteria and other resources that could help you decide whether it’s right for you.

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Emergency Services Superannuation Board (ABN 28 161 296 741) (ESSB), the Trustee of the Emergency Services Superannuation Scheme (ABN 85 894 637 037) (ESSSuper).

Investment returns are not guaranteed. All investments carry risks and past investment performance gives no indication of future performance. Benefits in ESSSuper's Accumulation Plan, Income Streams and Beneficiary Account products are not guaranteed or underwritten by the Victorian Government or ESSSuper, and ESSSuper does not come under the jurisdiction of the Australian Financial Complaints Authority. ESSSuper comes under the jurisdiction of the Victorian Civil and Administrative Tribunal. ESSSuper is an exempt public sector superannuation scheme, and is not regulated by APRA or ASIC, but is governed by Victorian legislation.

The information contained in this article is of a general nature only. It should not be considered as a substitute for reading ESSSuper's Product Disclosure Statement (PDS) that contains detailed information about ESSSuper products, services and features. Before making a decision about an ESSSuper product, you should consider the appropriateness of the product to your personal objectives, financial situation and needs. It may also be beneficial to seek professional advice from a licensed financial planner or adviser. An ESSSuper PDS is available at esssuper.com.au/pds or by calling 1300 650 161.

Transcript

Transcript 

00:00:02 

You're listening to Exploring Super, the exclusive podcast for ESS Super members. 

00:00:11 

Welcome to Exploring Super, the exclusive podcast for ESS Super members. 

00:00:17 

My name's Michelle Guinon and I'm the Stakeholder Relationship Manager at ESS Super. 

00:00:21 

And my name's Christian Kueng and I'm the Manager of Member Education at ESS Super. 

00:00:25 

So today we're joined by Chris Winton, the Member Education Consultant at EWS Super. 

00:00:30 

Hi Chris. 

00:00:30 

Good morning Christian and Michelle. 

00:00:32 

Thank you for inviting me along. 

00:00:33 

Nice to be here. 

00:00:34 

It's our pleasure to have you along Chris. 

00:00:36 

So the First Home Super Saver Scheme. 

00:00:38 

So can you give us a bit of detail about what actually is it? 

00:00:41 

Yeah, well effectively the First Home Super Saver Scheme is a federal government scheme to help people save for their first home by using their super funds. 

00:00:50 

What it actually does, it allows a member to withdraw voluntary contributions that they have paid into their accumulation superannuation plan since the 1st of July 2017 to assist in purchasing their first home. 

00:01:03 

So it is essentially an early release of super for a specific purpose. 

00:01:07 

And in this case, that specific purpose is to assist in the purchase of a first home. 

00:01:12 

So who can use the First Home Super Saver scheme and what is the eligibility criteria for it? 

00:01:18 

Excellent, excellent. 

00:01:20 

questions there. 

00:01:21 

Firstly, it's really important that we clarify one particular thing, probably before we go any further, and that is that this does not apply to a defined benefit scheme, okay? 

00:01:31 

So it's only accumulation funds. 

00:01:33 

So even if you've left the defined benefit, contributions paid into the defined benefit are not available for the purpose of the First Home Super Saver scheme. 

00:01:41 

Now, having said that, the vast majority of ESS super members have a defined benefit. 

00:01:47 

But they all have the option to open an accumulation plan if they want or need to. 

00:01:52 

Our emergency services defined benefit members automatically get provided an accumulation plan account when they join the defined benefit fund. 

00:02:00 

Our state super members would have the option of opening an accumulation fund. 

00:02:05 

So there are a number of other eligibility criteria and conditions. 

00:02:10 

You'll have to just bear with me. 

00:02:12 

There are quite a few points to make when we go through the eligibility criteria and conditions. 

00:02:16 

So firstly, you're 18 years old or older when requesting a first home super saver determination or a release of funds under the scheme. 

00:02:27 

Secondly, you're a first home buyer. 

00:02:29 

You have never owned property in Australia. 

00:02:31 

This includes an investment property, 

00:02:34 

vacant land, commercial property, a lease of land in Australia, or a company title interest in land in Australia, unless it is determined that you have suffered a financial hardship. 

00:02:45 

So quite a bit in that piece. 

00:02:47 

You intend to occupy the property you buy as soon as practicable and for at least six months, within the first 12 months you own it after it's practical to move in. 

00:02:58 

You have not previously made a First Home Super Saver release request. 

00:03:03 

The purchase contract you enter has to be for a residential property in Australia. 

00:03:09 

Obviously, I think, your name must be on the title of the property you buy. 

00:03:13 

You must genuinely intend to occupy the property as a home and demonstrate this by, one, occupying or intending to occupy the property as soon as practicable after purchase. 

00:03:26 

occupying or intending to occupy the property for at least six of the first 12 months from when it is practicable to occupy it. 

00:03:34 

Now you don't need to be an Australian citizen or Australian resident for tax purposes to use the First Home Super Saver scheme. 

00:03:42 

And finally, eligibility is assessed on an individual basis, and I think this one's quite important. 

00:03:47 

This means that couples, siblings or friends can each access their own eligible First Home Super Saver 

00:03:55 

contributions to purchase the same property. 

00:03:58 

If any of you have previously owned a home, it will not stop anyone else who is eligible from applying. 

00:04:04 

So I think that's a really important distinction there. 

00:04:06 

If you're going in a joint capacity or there's several of you, that it's assessed on an individual basis. 

00:04:12 

So that's a good news one. 

00:04:13 

And for that full list again, I would recommend that you refer to the ATO website for further detail and further information. 

00:04:19 

Okay Chris, thanks for that. 

00:04:21 

So what's the potential value here for a member? 

00:04:24 

So obviously members can save for a house, outside of super. 

00:04:27 

So why are they using superannuation or why would you look to use superannuation? 

00:04:32 

This is a great question, Christian, and probably the most pertinent question for someone considering the scheme, in my opinion. 

00:04:37 

One, tax rates on the way in. 

00:04:39 

Concessional contributions and non-concessional contributions are the technical terms of making contributions into super, then tax on the way out. 

00:04:47 

And this will be less 

00:04:49 

than your typical marginal rate of tax. 

00:04:52 

So it's a very effective way or tax effective way to save. 

00:04:56 

And my second point there is really about tax efficiency. 

00:04:59 

You reduce your income tax and can allow you to save faster by using the First Home Super Saver scheme. 

00:05:06 

You'll pay tax on the amount you withdraw at your marginal rate when the time comes to make that withdrawal or that release, but it will be discounted by 30%. 

00:05:15 

So very tax effective. 

00:05:17 

Investment earnings, so the interest that you might earn on those funds inside superannuation, the deeming rate applied of investment earnings for release. 

00:05:27 

So it is important to make a distinction there between what you might actually earn versus what the deeming rate that's applied. 

00:05:35 

A key consideration is that if members want to change their mind about the funds they've contributed into super for the purpose of the First Home Super Saver scheme, 

00:05:44 

they can't then access these funds. 

00:05:46 

So if you're contributing for that purpose and then thinking, oops, I'm not going to do this, those funds will remain preserved in super effectively until retirement. 

00:05:56 

That's great, Chris. 

00:05:58 

What are the important thresholds that members need to know before considering the First Home Super Saver scheme to save for their first home? 

00:06:06 

Yes, very, very important that there are some limits around what you can do with superannuation. 

00:06:11 

You can apply to have a maximum of $15,000 of your voluntary contributions, both concessional and or non-concessional contributions from any one financial year included in your eligible contributions to be released under the First Home Super Saver scheme. 

00:06:29 

You are limited to a total of $50,000 of contributions across all years. 

00:06:35 

when it comes time to access. 

00:06:36 

So please note, 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. 

00:06:50 

You will also receive associated earnings. 

00:06:53 

Now this refers back to the point I made earlier, which is a deemed amount of earnings calculated based on what is known or what is called the shortfall interest charge, SIC rate. 

00:07:05 

This is not the actual earnings on those contributions in your fund. 

00:07:10 

The SIC rate uses the base interest rate as defined in tax legislation and is the 90-day bank accepted bill rate published by the Reserve Bank plus 3%. 

00:07:22 

So I suppose my distinction there would be you've invested these 

00:07:25 

funds, these contributions into super, and you might be in a balanced option, for example, and thinking, beauty, I've made 10% interest on this money. 

00:07:35 

That is not the rate that will be applied to the earnings on those contributions, and it refers then back to the shortfall interest charge. 

00:07:43 

And finally, it's important to understand the contribution caps that apply to superannuation. 

00:07:47 

From the 1st of July 2024, the concessional limit, so the pre-tax limit, is $30,000 per annum, 

00:07:55 

And the non-concessional contribution limit or the post-tax limit is $120,000 per annum. 

00:07:59 

Okay, so members are going. 

00:08:01 

To be obviously contributing into their superannuation and that's just going to form part of their total balance. 

00:08:07 

So how does a member know how much they can actually release and get access to these monies? 

00:08:12 

A very important element there. 

00:08:14 

The members must use their MyGov and link their MyGov with their ATO account. 

00:08:20 

So there's an important step there. 

00:08:22 

Once that's set up, the member can run a determination at any time to see the releasable value, and then when ready, apply for the release at the appropriate time. 

00:08:32 

So when you're ready to receive your First Home Super Saver amounts, you do need to apply to the ATO for an FHSS, a First Home Super Saver determination, and then a release. 

00:08:44 

This is a two-step process, so importantly you need to understand that. 

00:08:49 

You must 

00:08:50 

have a First Home Super Saver determination before you sign a contract that results in you obtaining an interest in a property, including a contract to purchase vacant land. 

00:09:01 

So a very, very important distinction there to make sure that you've entered into that, or you've entered into the determination first. 

00:09:08 

Except in limited circumstances, once you sign a contract to purchase any property, you're no longer eligible to request an FHSS or First Home Super Saver determination. 

00:09:20 

So I think there's an important distinction there for members not to perhaps jump the gun and be charging off to buy the property without first having established their determination on the First Home Super Saver scheme if they're using it. 

00:09:33 

Definitely. 

00:09:34 

Thanks Chris. 

00:09:35 

That really is a lot of information. 

00:09:37 

Is there anything else that's important for members to know before they utilise the First Home Super Saver scheme? 

00:09:44 

Absolutely, Michelle. 

00:09:45 

I think there's a few things here that members need to be certain that they've covered. 

00:09:49 

Firstly, preservation rules. 

00:09:51 

So if money goes into super, a member must generally meet a condition of release to withdraw it. 

00:09:57 

And obviously with the First Home Super Saver Scheme, that's a specific programme and a specific sort of early release arrangement. 

00:10:04 

So if you do change your mind, as I've mentioned earlier, 

00:10:08 

your preservation rules will apply to those funds and you won't be able to access those for any other purpose until you've met that condition of release, which is typically at retirement. 

00:10:17 

Investment risk is also another key criteria or a key area here. 

00:10:22 

Funds go into an accumulation plan, okay, where the member takes on the investment risk. 

00:10:27 

So those funds are being invested in the market. 

00:10:30 

So the risk of that money, whilst it is sitting in the accumulation plan, that those investment values can go up and also can come down. 

00:10:38 

Completing a tax return, you must include the assessable first home super saver scheme released amount shown on your payment summary, that's the payment summary you get, as assessable income in your tax return for the year you request the release. 

00:10:53 

So important there. 

00:10:54 

Again, if a member releases funds and they are not used, there are penalties. 

00:11:01 

and penalties if not eligible and requested release anyway. 

00:11:04 

So it's very, very important to understand that if you do say that and then you don't use it for that purpose, that there are penalties associated from the ATO. 

00:11:13 

There are some minor changes that are coming into effect later this year from the 15th of September 2024. 

00:11:19 

These have little changes in the structure, but it gives the Commissioner of Taxation structural discretion to amend and revoke First Home Super Saver scheme requests. 

00:11:29 

So for further assistance, we'd encourage you to seek financial advice, or if you just require some general advice around your options, you can come and see us in the member education team here at ESS Super and have a discussion around how the scheme works. 

00:11:42 

Further to that, I'd encourage you to go to the ATI website and MyGov for information on the scheme. 

00:11:48 

The ESS Super's website has a fact sheet on the First Home Super Saver scheme, and that is available for you. 

00:11:54 

The ATO website, as I mentioned, determinations and release of funds, timing and contract signing timing, I would encourage you to reference the ATO for those particulars as you require. 

00:12:04 

Well, that wraps up today's episode of Exploring Super, the exclusive podcast for ESS Super members. 

00:12:10 

We look forward to producing more content for you at ESS Super, proudly serving our members. 

00:12:15 

If you'd like more information about our investment and products, please go to esssuper.com.au. 

00:12:24 

This podcast is of a general nature only and does not consider your personal circumstances, financial needs or objectives. 

00:12:32 

Before acting on any advice contained in this podcast, please download and read the relevant product disclosure statement and target market determination found on our website, esssuper.com.au. 

00:12:47 

The board recommends that you seek financial advice before acting upon this information. 

00:12:52 

Benefits in ESS Super accumulation plan, income stream and beneficiary account products are not guaranteed or underwritten by the Victorian Government or ESS Super. 

00:13:05 

Any institutions mentioned by name does not constitute endorsement. 

00:13:10 

For more in-depth information about the First Home Super Saver Scheme, please refer to the Australian Tax Office website at ato.gov.au before deciding to contribute into your super.