Saving money to buy your first home can be challenging, especially when you have bills to pay and other expenses to attend to. Good thing the government is here to help you save more through the First Home Super Saver (FHSS) scheme.

Saving More with FHSS

In the past few years, the cost of houses in Australia, specifically in Melbourne and Sydney, kept on rising. The average house price in Sydney is around $1.1 million – an amount several times greater than the average salary of people living there.

The FHSS scheme was created by the government in 2018 to ease the pressure on house purchases. This is very advantageous to those who are looking into saving money to purchase their first home.

Home loans will only lend you up to 80% of the total value of the property you’re purchasing. So, if you’re targeting a property worth $1 million, you’ll have to deposit 20% first before you’re granted the loan. This will cost you a whopping $200,000 which is not realistic for most people. Even if you manage to negotiate your loan and pay only 5% as a deposit, that will still amount to $50,000. This might still be a price too high to pay for someone who has a below average salary, especially when they’re paying bills and rent.

With the help of the FHSS scheme, you can save money similar to a super and save on taxes in the process.

How It Works

In a typical super scheme, your employer sheds 9.5% off your salary and puts it into your super account which you can receive back when you retire. With the FHSS scheme, it’s like another compartment is created under your super account which can be used only for home deposit savings. It’s up to you how much you want to put into the FHSS account every payday.

The amount you put into your FHSS account is taxed only at 15% instead of the marginal tax rate applied to your salary. So, if you’re earning $50,000 and you want to save $10,000 for your home deposit, you’ll have to pay only $1,500 in taxes if you put it into an FHSS scheme. This is way better than paying $3,250 in taxes and putting what remains in your bank account.

A maximum of $15,000 a year can be contributed to your FHSS account. The total amount that can be saved in your FHSS account is $30,000 only. This may not be much if you think about the amount you have to save for the deposit. However, the tax savings you’ll get from an FHSS scheme can be tremendous. You’ll be saving thousands of dollars compared to a typical bank account.

Although most employers allow this scheme, there are still some that don’t offer this option. You must talk to your employer to see if they can arrange an FHSS contribution in addition to your pre-tax super deductions.

Rules on Eligibility and Claims

The FHSS scheme is only available to first-time house buyers. Once you’ve requested for the release of funds, you can’t reinvest or get into a new FHSS program again.

After the fund in your FHSS account is released, you have to proceed with one of the following actions within the next 12 months:

-          Construct your home or sign a contract to purchase one. The ATO should be notified within 28 days after the commencement of any of the actions described.

-          Reinvest the amount back into your super account.

Failure to notify the ATO of any of the following actions above will cost you quite a big amount. A flat tax rate of 20% will be applied to the assessable amount released to you. The same thing goes if you decide to keep the money or put it into a private bank account.

There’s no age requirement for getting into the FHSS program. However, you’ll have to wait until you’re at least 18 years old before the funds are released into your care.

To be eligible for the FHSS scheme, you have to satisfy the following conditions:

-          You have never owned any type of property in Australia. Owning a vacant land, a land leasing property, or a commercial property will disqualify you from applying for the scheme.

-          You have not applied for the scheme before.

Eligibility for the scheme is assessed individually. This means partners, friends, or siblings can all apply for the scheme and use the fund to purchase the same house.

Conclusion

Getting into an FHSS scheme can help a lot in purchasing your first home. By providing lower taxes and greater interest rates, you’ll save more with this scheme compared to a typical bank savings account. It may not be much with its $30,000 limit, but it is way better than not having any extra savings boost at all.