FHSS Scheme: Key Provisions and Essential Tips
The FHSS scheme (longer version: First Home Super Saver Scheme) might feel like a bit of a mystery on how it actually works in Australia. We’ve written this article to help you understand the ins and outs of the first home saver scheme and how it can help you get your first home sooner.
The journey to first homeownership can seem daunting, especially when it comes to saving for a deposit. Fortunately, with Australia’s First Home Super Saver Scheme (FHSS), you have a unique avenue to help you grow your savings faster by leveraging your superannuation account. Read on to learn how it works and our tips to get the most benefit out of using the scheme.
How the First Home Super Saver Scheme Works
So, what is the FHSS scheme and how does it work? To summarise, here’s what this scheme can do. The first home saver super scheme allows first-time home buyers to save money for a deposit by making voluntary contributions to their superannuation account. These contributions can be pre-tax (concessional) or post-tax (non-concessional), up to a limit of $15,000 per financial year and a maximum total of $50,000.
The appeal of the scheme lies in its tax benefits – concessional contributions are taxed at 15%, generally lower than most individual tax rates, which can result in substantial savings over time.
Key Benefits of the FHSS Scheme
Now, this scheme offers multiple benefits for potential first-home buyers:
- Tax Savings – By saving through the FHSS, you benefit from a lower tax rate on concessional contributions, allowing your deposit to grow faster.
- Structured Savings Approach – Contributions through your super can provide a disciplined savings approach, which many find easier to maintain than a traditional savings account.
While these basic features are well-known, there are several lesser-known elements of the FHSS Scheme that are worth understanding to make the most of this opportunity.
Lesser-Known Provisions of the FHSS Scheme
While we’ve already covered the basics of the super saver scheme, there are some less-discussed yet essential points that can help you maximise this scheme’s benefits. Here are some of them:
Financial Hardship Provision
One unique benefit of the FHSS Scheme, not often covered in other articles, is the financial hardship provision. This allows individuals who have previously owned property but have since faced significant financial hardships – such as bankruptcy or divorce – to still potentially qualify for the scheme. To do so, applicants must provide evidence of their hardship to the Australian Taxation Office (ATO), which will review the situation on a case-by-case basis.
Associated Earnings on Contributions
Another little-discussed feature of the FHSS Scheme is how associated earnings on your contributions are calculated. Rather than being based on your super fund’s actual performance, the ATO uses a “deemed rate” to determine these earnings. This rate is set independently of super fund fluctuations, which can be a significant advantage in low-performing market conditions.
Super Fund Participation and Eligibility
Another point often overlooked in discussions about the FHSS Scheme is that not all super funds offer FHSS releases. Before making any voluntary contributions intended for the scheme, it’s crucial to confirm whether your super fund supports FHSS withdrawals.
Checking eligibility with your super fund beforehand can save you time and frustration down the road. This will help ensure that your contributions will be available when you need them.
FHSS Contribution Caps and Tax Implications
While the scheme’s contribution caps are standard knowledge, the tax implications associated with exceeding these limits are rarely mentioned. Staying within these caps ensures you’ll avoid extra tax liabilities.
It’s also worth noting that when you withdraw FHSS funds, the assessable amount is included in your taxable income for that financial year. Depending on your total income, this could affect your tax bracket, so planning FHSS withdrawals with this in mind is important. Especially if you are wanting to use another Gov Backed Scheme for first home buyers which requires your gross annual income to fall under certain thresholds.
Residency Requirement for FHSS Funds
A lesser-known requirement is the residency condition attached to using FHSS funds. The purchased property must be in Australia and you must intend to live in it for at least six months within the first year of ownership. This rule ensures that the FHSS Scheme supports local homeownership rather than investment, aligning with its purpose of promoting stable, long-term housing.
Tips for Making the Most of the FHSS Scheme
To fully benefit from this scheme, consider the following tips:
- Check with Your Super Fund – Confirm that your super fund supports FHSS withdrawals before making voluntary contributions.
- Budget Your Contributions – Ensure contributions stay within the annual and total FHSS limits to avoid unexpected tax.
- Plan Around Tax Timing – Because FHSS withdrawals affect your taxable income, consider timing your withdrawal to minimise tax impacts.
- Seek Financial Advice – Consulting a mortgage broker or financial advisor can help you understand how FHSS savings fit into your broader financial goals and optimise your strategy.
NBHL Can Help You Maximise Your Use of the FHSS Scheme
The First home Super Saver Scheme is a valuable tool for first-time home buyers – offering unique tax advantages and a structured savings approach. However, understanding the lesser-known aspects, such as the financial hardship provision, super fund eligibility and tax implications, can further enhance its benefits.
By familiarising yourself with these additional elements, you can navigate the FHSS Scheme with confidence and potentially reach your goal of homeownership faster. Contact us today so we can explore with you how this scheme might best serve your unique needs.
Patrick Cranshaw, a Certified Mortgage Professional for over 21 years, founded North Brisbane Home Loans in 2002. His career began with ANZ Bank in New Zealand, where he progressed over 16 years to a Business Banking role in Virginia. After moving to Brisbane in 2000, Patrick led the QLD market for a home loan agency, helped set up the REMAX Real Estate Finance division, and practiced as a broker.
