First Home Super Saver Scheme (FHSS)

The First Home Super Saver (FHSS) scheme, introduced by the government in July 2017, offers a tax-effective way to accelerate your savings by using your superannuation fund.

The FHSS scheme allows eligible first-home buyers to make voluntary contributions to their superannuation and later withdraw those funds, plus associated earnings, to use as a home deposit. You can contribute up to $15,000 per financial year, with a total maximum withdrawal limit of $50,000 per individual across all years.

Eligible contributions include:

  • Salary sacrifice: Before-tax contributions made by your employer at your request.
  • Personal deductible contributions: After-tax contributions for which you claim a tax deduction.
  • Personal non-concessional contributions: After-tax contributions for which no tax deduction is claimed.

It is important to note that compulsory Super Guarantee contributions made by your employer cannot be withdrawn under this scheme.

Who Can It Help?

The scheme is designed for individuals who meet specific criteria:

  • First-Home Buyers: You must have never owned property in Australia, including investment properties, vacant land, or commercial interests.
  • Age: You must be 18 years or older at the time you request a release of funds, though contributions can start earlier.
  • Couples and Groups: Eligibility is assessed individually. This means partners, siblings, or friends can each access their own $50,000 limit to purchase the same property together.
  • Financial Hardship Exception: You may still qualify if you previously owned property but lost it due to financial hardship, such as bankruptcy, divorce, job loss, or natural disasters.

The Pros: Why Consider the FHSS Scheme?

  • Significant Tax Savings: Concessional (before-tax) contributions are generally taxed at just 15% within the super fund, which is typically much lower than most marginal income tax rates.
  • Withdrawal Tax Offset: When you withdraw your savings, the assessable portion is taxed at your marginal rate but receives a 30% tax offset, further reducing the tax burden.
  • Higher Earnings: Instead of standard bank interest, you receive “associated earnings” calculated by the ATO (often at the shortfall interest charge rate), which is generally higher than typical savings account rates.
  • Accelerated Savings: The combination of tax concessions and compound investment returns can help you reach a deposit goal faster than saving in a traditional bank account.

The Cons: What Are the Risks and Limitations?

  • Impact on Retirement: Withdrawing funds from your super means you will have less money saved for your retirement later in life.
  • Administrative Complexity: You must navigate a strict process, including obtaining a determination from the ATO before signing a property contract. Errors in this process can delay or even cancel your release request.
  • Strict Timelines: Once funds are released, you generally have 12 months to sign a contract to buy or build a home. If you don’t, you must either recontribute the amount to your super or pay a 20% tax penalty.
  • Wait Times: It can take 15 to 25 business days for the funds to reach your bank account once requested, which must be factored into your buying timeline.
  • Market Risk: Like any investment, the real estate market is subject to fluctuations, and there is no guarantee that property values will remain stable while you save.

How do couples combine their FHSS benefits for a deposit?

Couples can combine their benefits under the First Home Super Saver (FHSS) scheme because eligibility is assessed on an individual basis. This means that each person in the relationship can make their own voluntary contributions and request their own release of funds to put toward the same property.

Here is how the process works for couples:

  • Combined Savings Limit: Since the maximum release amount for an individual is $50,000, a couple can potentially access a combined total of up to $100,000 (plus associated earnings) for their home deposit.
  • Independent Eligibility: If one partner has previously owned a home in Australia but the other has not, the eligible partner can still use the FHSS scheme to buy their first home together. The previous ownership of one person does not disqualify the other.
  • Title Requirements: To use the scheme, the individual’s name must be on the title of the property being purchased.
  • Individual Applications: Each person must manage their own FHSS process separately, including requesting their own determination from the ATO and submitting their own release request when they are ready to purchase.

By using the scheme jointly, couples can take advantage of the tax concessions and higher deemed earnings on two sets of contributions, effectively accelerating their ability to save a larger deposit.

How does the FHSS scheme help me save faster?

The First Home Super Saver (FHSS) scheme accelerates your savings primarily through significant tax concessions on contributions and earnings. Voluntary concessional contributions, such as those made via salary sacrifice or personal deductible contributions, are generally taxed at a flat rate of 15% within your super fund. This rate is typically much lower than the marginal income tax rate you would pay if that money were saved in a standard bank account. By saving in a lower-tax environment, more of your money remains available to grow for your deposit.

Additionally, the scheme provides associated earnings on your contributions, which are calculated using a notional growth rate set by the ATO rather than the actual returns of your fund. This deemed earnings rate is usually higher than the interest rates offered by traditional savings accounts.

When you are ready to withdraw the funds for your deposit, you also benefit from a 30% tax offset on the assessable portion of the release (which includes concessional contributions and all associated earnings). This further reduces the tax burden at the point of withdrawal compared to other forms of investment. The combination of lower entry tax, higher deemed returns, and the withdrawal tax offset allows you to accumulate a larger deposit more quickly than saving outside of the superannuation system. For example, a first-home buyer could potentially save thousands of dollars more in a single year by using the FHSS scheme instead of a regular bank account.

What are the eligibility rules for first home buyers?

To be eligible for the First Home Super Saver (FHSS) scheme, you must generally be a first-home buyer who meets specific age, ownership, and residency intentions. Eligibility is assessed on an individual basis, meaning that couples, friends, or family members can each access their own individual FHSS benefits to purchase the same property together.

The core eligibility rules include:

Individual Requirements

  • Age: You must be 18 years or older when you request an FHSS determination or a release of funds. However, you can start making eligible voluntary contributions before you turn 18.
  • First-Home Status: You must have never owned any property in Australia. This restriction includes investment properties, vacant land, commercial property, a lease of land, or a company title interest in land.
  • Previous Use: You must not have previously made a successful FHSS release request.
  • Residency and Citizenship: You do not need to be an Australian citizen or an Australian resident for tax purposes to use the scheme.

Property and Ownership Rules

  • Occupancy Requirements: You must genuinely intend to occupy the property as your home as soon as practicable. You are required to live in the property for at least six of the first 12 months after it becomes capable of being occupied.
  • Property Type: The funds must be used for a residential property in Australia. The scheme cannot be used to purchase houseboats, motorhomes, or any premises not capable of being occupied as a residence.
  • Vacant Land: You can use the scheme to buy vacant land, but only if you have a contract to construct a home on that land.
  • Title Requirements: Your name must be listed on the title of the property you purchase.

The Financial Hardship Exception

If you have previously owned property in Australia, you may still qualify for the scheme if the Commissioner of Taxation determines you have suffered financial hardship that resulted in the loss of all your property interests. Hardship events may include:

  • Bankruptcy.
  • Divorce, separation, or relationship breakdown.
  • Loss of employment.
  • Illness.
  • Impact from a natural disaster.

To qualify under this exception, you must not have acquired a new interest in Australian real property since the hardship event occurred. It is recommended that you apply for this hardship determination before you start saving through the scheme to ensure you are eligible.

Withdrawal limits and the application process

The First Home Super Saver (FHSS) scheme has specific limits on how much you can save and withdraw, along with a structured four-step application process managed through the Australian Taxation Office (ATO).

Withdrawal Limits

The amount you can withdraw is based on the voluntary contributions you have made since 1 July 2017, plus associated earnings.

  • Contribution Caps: You can contribute up to $15,000 per financial year, with a total maximum limit of $50,000 across all years.
  • Eligible Withdrawal Amounts: When you request a release, the ATO calculates your maximum release amount as the sum of:
    • 100% of eligible non-concessional contributions (after-tax contributions for which you did not claim a deduction).
    • 85% of eligible concessional contributions (salary sacrifice or personal contributions for which you claimed a tax deduction).
    • Associated earnings on these contributions, calculated using a deemed growth rate set by the ATO.
  • One-Time Rule: You are only permitted to make one FHSS withdrawal request in your lifetime.

The Application Process

The process must be followed carefully to avoid delays or tax penalties, and it is largely managed through ATO online services via myGov.

Step 1: Request a Determination Before signing a contract for a home, you must request an FHSS determination from the ATO. This determination confirms your eligibility and calculates exactly how much you are allowed to withdraw based on your contribution history. You can request multiple determinations as your savings grow, but you must have a current one before you move to the next step.

Step 2: Request the Release of Funds Once you have a determination and are ready to access your savings, you submit a release request to the ATO. You must specify the amount you want released (up to your maximum limit) and the super fund(s) from which the money should be drawn.

Step 3: Sign a Contract and Notify the ATO After requesting a release, you generally have 12 months to sign a contract to purchase or construct a residential property.

  • Notification: You must notify the ATO via myGov after signing the contract.
  • Timing: If your determination was made on or after 15 September 2024, you must notify the ATO within 90 days of signing. For older determinations, the notification window is 28 days.
  • Extensions: If you don’t find a home within 12 months, the ATO may grant an automatic extension for a further 12 months.

Step 4: Receive Your FHSS Amount Once the release is approved, the ATO sends a release authority to your super fund. The fund sends the money to the ATO, which withholds the appropriate amount of tax and uses any remaining funds to pay off outstanding government debts before paying the balance to you. This final step typically takes between 15 and 25 business days.

How is the 30% tax offset calculated on withdrawals?

The 30% tax offset is applied to the assessable portion of your First Home Super Saver (FHSS) withdrawal to reduce the total tax you pay on those funds.

Here is a breakdown of how it is calculated and applied:

1. Identify the Assessable Amount

The tax offset does not apply to your entire withdrawal. It only applies to the “assessable FHSS released amount,” which includes:

  • Concessional contributions: 85% of your before-tax or tax-deductible contributions.
  • Associated earnings: The deemed earnings calculated by the ATO on both your concessional and non-concessional contributions.

Non-concessional (after-tax) contributions are not part of your assessable income and are withdrawn tax-free.

2. Calculation at the Time of Release

When the ATO processes your release request, they estimate the tax to withhold based on the following:

  • Marginal Rate Calculation: They calculate tax on the assessable amount at your estimated marginal tax rate plus the Medicare levy.
  • Subtracting the Offset: They then subtract the 30% tax offset from that rate.
  • Default Rate: If the ATO cannot estimate your marginal tax rate, they will withhold a flat tax rate of 17%.

3. Final Reconciliation in Your Tax Return

The withdrawal must be included in your tax return for the financial year you requested the release, even if you don’t receive the money until the following year.

  • Actual Marginal Rate: When you lodge your tax return, the ATO knows your actual marginal tax rate for that year.
  • Applying the Offset: They recalculate the tax liability on the assessable FHSS amount using that actual rate, apply the 30% offset, and take into account the tax that was already withheld.

This process ensures that you are taxed at a rate significantly lower (30% lower) than your standard income tax rate on those specific savings.

How do salary sacrifice contributions affect my repayment income?

Salary sacrifice contributions affect your repayment income primarily through their classification as reportable employer super contributions.

If you are using salary sacrifice to save for a home under the First Home Super Saver (FHSS) scheme, you should be aware of the following impacts:

  • Inclusion in Repayment Income: Salary sacrifice contributions are included in your repayment income used to calculate your compulsory repayments for study and training support loans. These loans include:
    • Higher Education Loan Program (HELP).
    • Student Start-up Loan (SSL) and ABSTUDY SSL schemes.
    • Australian Apprenticeship Support Loan (AASL), previously known as the Trade Support Loan (TSL).
    • Student Financial Supplement Scheme (SFSS).
  • Adjusting Tax Withholding: Because these contributions increase your repayment income, you may need to review your pay as you go (PAYG) withholding arrangements with your employer. This ensures that the tax withheld from your salary and wages throughout the year is sufficient to cover your total loan repayment liability.
  • FHSS Withdrawals: Notably, when you eventually withdraw your contributions under the FHSS scheme, the released amount is not included in your repayment income for the year in which you request the withdrawal.
  • Other Income Assessments: Similarly, the assessable FHSS released amount is not included in your assessable income when calculating family assistance and child support payments.

Which property types are excluded from the FHSS scheme?

The First Home Super Saver (FHSS) scheme is designed specifically for the purchase of residential property in Australia that you intend to occupy as your home. Consequently, several types of property are explicitly excluded from the scheme, including:

  • Houseboats.
  • Motor homes.
  • Any premises not capable of being occupied as a residence.
  • Vacant land, unless it is part of a plan to build. You cannot use the scheme to buy vacant land by itself; however, it is permitted if you enter into a contract to construct a home on that land within 12 months (or an allowed extended period) of requesting your funds.

To remain eligible, you must also genuinely intend to live in the purchased residential property for at least six of the first 12 months after it becomes practicable to occupy. Additionally, while the scheme is for residential homes, having previously owned other types of property—such as investment properties, commercial property, or a company title interest in land—will generally make you ineligible to use the FHSS scheme as a first-home buyer.

What are the rules for buying vacant land?

Under the First Home Super Saver (FHSS) scheme, you can use your released savings to purchase vacant land, but specific rules apply to ensure the funds are used for a primary residence.

The Construction Requirement

You cannot use the FHSS scheme to purchase vacant land by itself. You are only permitted to buy vacant land if you also intend to build a residential home on that land.

Timing and Ownership

  • Determination Before Settlement: You must apply for an FHSS determination before ownership of the vacant land transfers to you, which typically occurs at the settlement of the property contract. Once the title has transferred to your name, you are no longer eligible to request a determination for that purchase.
  • Building Contract Timeline: After requesting the release of your funds, you generally have 12 months to enter into a contract to construct your home on that land.
  • Extensions: If you are unable to enter a construction contract within the initial 12 months, the ATO may grant an automatic extension for a further 12 months, providing a total of 24 months from the release request date.

Occupancy Rules

Once the home is constructed on the vacant land, you must meet the scheme’s occupancy requirements:

  • You must genuinely intend to occupy the property as your home as soon as it is practicable to do so.
  • You must live in the home for at least six of the first 12 months after it becomes capable of being occupied.

Notification and Compliance

After signing your construction contract, you must notify the ATO within a specific timeframe (usually 28 or 90 days depending on when your determination was made). If you do not enter a construction contract within the allowed timeframe, you must either recontribute the assessable amount to your super fund or pay a 20% FHSS tax.

What happens if I don’t buy a home?

If you choose not to buy a home after withdrawing funds through the First Home Super Saver (FHSS) scheme, you generally have 12 months from the date of your release request to sign a contract to purchase or construct a home. If you do not meet this deadline, you must take specific actions to avoid or manage tax penalties.

1. Automatic Extension

If you have not signed a contract within the initial 12 months, the ATO will generally grant an automatic extension for a further 12 months, giving you a total of 24 months from your release request date to find a property. You do not need to apply for this extension; the ATO will notify you if it has been granted.

2. Your Options if You Don’t Buy

If the 24-month period expires and you still have not signed a contract for a home, you must choose one of the following two options:

  • Recontribute the Funds to Super: You can put the money back into your superannuation fund. The amount recontributed must be at least equal to your assessable FHSS released amount (the portion consisting of concessional contributions and earnings) minus any tax the ATO already withheld.
    • This must be made as a non-concessional contribution, and you cannot claim a tax deduction for it.
    • You must notify the ATO that you have recontributed these funds.
    • Note: Once you recontribute these funds, you are ineligible to use the FHSS scheme again in the future.
  • Keep the Funds and Pay the FHSS Tax: You may choose to keep the released money, but you will be subject to a flat FHSS tax of 20% of your assessable released amount. This tax is designed to remove the tax benefits you initially received by using the scheme.

3. Notification Requirements

Regardless of which path you take, you must notify the ATO of your decision via myGov. If you fail to notify the ATO that you have either signed a contract or recontributed the funds, you may automatically be made subject to the 20% FHSS tax.

It is also important to remember that if you do not release your contributions under the FHSS scheme at all, they simply remain in your superannuation account as part of your retirement savings until you meet another condition of release, such as reaching preservation age and retiring.