First Home Super Saver Scheme

Posted on 13 March 2018

The legislation implementing the First Home Super Saver (FHSS) Scheme has passed parliament and received royal assent on 13 December 2017.

The new rules provide an important opportunity for many to save a deposit for their first home within superannuation. In this article we detail ‘frequently asked questions’ regarding the FHSS Scheme.

1. Do you need to register or notify the ATO or the Superannuation fund that you intend to make contributions under the FHSS scheme?

You do not need to notify your fund or the ATO that contributions are being made for the purpose of the FHSS scheme. Contributions made under the FHSS scheme are not a new type of contribution. They are voluntary contributions which may be either voluntary concessional (e.g. salary sacrifice or personal deductible contributions) or voluntary non-concessional contributions.

2. Is there a special contributions cap for FHSS contributions?

FHSS contributions will be either concessional or non-concessional contributions and must be within your concessional contributions cap or non-concessional contributions cap. There is not a new category of contribution.

However, the maximum amount of concessional and non-concessional contributions that may be eligible contributions for the FHSS scheme is limited to:

• $15,000 of voluntary concessional and non-concessional contributions per financial year (beginning 1 July 2017) and
• $30,000 of voluntary concessional and non-concessional contributions in total.

The amount of eligible FHSS contributions that may be released is subject to additional limits.

3. I have signed a contract and paid a deposit to purchase an off the plan residence in 2017. The property won’t be completed until 2019. Can I release an amount for the deposit?

No. The ATO has advised that the FHSS scheme requires individuals to release FHSS amounts BEFORE entering into the contract to purchase or construct their first home.

Once you enter into a contract to purchase or construct a residential premise, legally binding obligations about the purchase or construction are created, and they are taken to hold an interest in that property.

4. Are non-concessional contributions eligible to be released under the FHSS scheme also eligible for a co-contribution?

Yes, assuming all eligibility requirements for the co-contribution are met. The non-concessional contribution may be released as an FHSS amount however the co-contribution itself must remain in the superannuation fund.

5. Do I need to release FHSS contributions within a specified timeframe after the contribution?

No. The contributions may remain in super for as long as you want. However, there is a time limit to purchase a home after any FHSS contribution is released. Any released amounts must be used to purchase or construct your first home within 12 months of the release date (or up to 24 months upon an extension being granted by the ATO).

6. I divorced several years ago, I previously owned a family home as a joint tenant prior to the divorce, but the home was sold as part of the divorce proceedings. Can I access my super under the FHSS scheme if I am suffering financial hardship?

Potentially yes. The FHSS scheme allows the ATO to determine whether someone has suffered a ‘financial hardship’. The definition of ‘financial hardship’ for these purposes will be defined in regulations yet to be made. If a person is determined to have suffered a financial hardship, they may be eligible to access super under the FHSS scheme even if they have held an interest in real property in Australia. You would still need to meet all other requirements of the FHSS scheme.

7. I have previously owned a home outside of Australia, am I able to use the FHSS scheme to purchase my first home in Australia?

A person is only excluded from applying for a FHSS determination if they have held a freehold interest in real property in Australia; a company title interest in land in Australia, or a leasehold of land in Australia. Therefore, if you have previously owned a home in another country, you may still be eligible to use the FHSS scheme.

Interestingly, the first home purchased using the FHSS released amounts does not have to be in Australia. However, it must be a residential premise that you intend to occupy for at least 6 months of the first 12 months after it is practicable to occupy.

8. I have made personal contributions of $2,000 per month in 2017/18 and claimed a tax deduction for $10,000 of those contributions in June 2018. What amount can I release under the FHSS scheme?

As at the end of June 2018, this client has made $14,000 in non-concessional contributions and $10,000 of concessional contributions.

• FHSS contributions are capped at $15,000 per financial year and $30,000 in total.
• Where both personal deductible contributions and non-concessional contributions are made within a financial year, non-concessional contributions are treated as being made first.

Therefore, for this client, the maximum release amount is:

• 100% of $14,000 non-concessional contributions
• 85% of $1,000 concessional contributions ($850)
• Associated earnings on $14,850 of contributions

9. What part of the FHSS released amounts are assessed?

Only concessional contributions and associated earnings released under the FHSS scheme are assessable to you but subject to a 30% non-refundable tax offset. The ATO will withhold an estimate of your tax liability. Any non-concessional contributions released do not form part of your assessable income and are not taxed.

For example, Bob made $10,000 of voluntary personal deductible contributions and $5,000 of voluntary non-concessional contributions and has applied for a determination of his maximum release amount.

Bob’s maximum release amount of $14,000 is made up of:

• $5,000 of non-concessional contributions
• $8,500 of personal deductible contributions (85% of $10,000)
• $500 of associated earnings on the $13,500.

If the ATO releases this maximum release amount to Bob, $9,000 ($8,500 + $500) will be included in his assessable income, and a 30% non-refundable tax offset will apply. Upon release, the ATO will withhold the estimated tax payable on the $9,000.

10. How much tax does the ATO withhold on assessable FHSS amounts released?

Tax withheld is calculated on assessable amounts released. Only concessional contributions and associated earnings released under the FHSS scheme are assessable to you. For example, if $30,000 of concessional contributions are made, 85% may be released ($25,500), and tax is withheld on this amount plus associated earnings upon release.

Tax withheld is determined by the client’s marginal tax rate less 30%.

11. If I make a personal contribution to my retail super fund in 2017/18, what is the earliest time I can access this amount under the FHSS Scheme?

• A request for an FHSS determination may be made from 1 July 2018. Once you receive a determination of your maximum releasable amount from the ATO, it is not clear how long it will take the ATO to issue the determination.
• After you receive a determination, you have 60 days to request the ATO to issue a release authority to your fund.
• The ATO must issue a release authority to each superannuation provider identified in your request. It is not clear how long it will take the ATO to issue the release authority. The ATO website (in reference to applying for a release authority) states: “It will take approximately 12 business days to process your request.” It is not clear whether this means the ATO will issue the release authority to the fund in 12 days, or whether the ATO expects to release the money to the client within 12 days.
• Upon receipt of a release authority, the superannuation provider generally has 10 business days to release the amount to the ATO.
• Provisions exist that entitle an individual to interest if the ATO takes more than 60 days to pay the amount. It is not clear how long it will take the ATO to pay the released amount to the client.

Large APRA fund reporting timeframes and the need to complete the notice of intent process also add to the uncertainty around the timeframe for the completion of the release process.

Considering the uncertainty of the timeframes, you would be well advised to commence the release authority well in advance of entering into a contract to purchase your first home.

12. when do I submit my notice of intent (NOI) for a personal deductible contribution that is also a FHSS contribution?

A valid NoI must be submitted to a fund by the earlier of:

• the day you lodge your income tax return for the income year in which the contribution was made or
• the end of the next income year following the year of the contribution.

In addition, if you want to request an FHSS determination in relation to the personal deductible contribution, the NoI must be submitted, and acknowledged by the fund prior to requesting an FHSS determination.

The process for requesting an FHSS determination will include a requirement for you to advise the ATO of any NoIs they have lodged and any acknowledgements of such notices they have received. You will also be required to confirm you will not claim further deductions in respect of your contributions.

If an individual claims a deduction after requesting an FHSS determination, they may be subject to penalties for making a false and misleading statement under Division 284 of Schedule 1 of the Taxation Administration Act 1953.

This NoI process will need to be factored into the timeframes for releasing an amount under the FHSS scheme.

13. What happens if I request a FHSS determination, but the contributions haven’t been reported yet? 

If you make FHSS contributions and submit a request to the ATO for a determination of your FHSS release amount prior to the contributions being reported to the ATO by the fund, you may receive a determination of a zero FHSS release amount.

You would then have the right to object to the determination and provide the ATO with any additional information evidencing why the determined amount was incorrect. The ATO may then issue an amended determination.

The process of verifying contributions in this transitional period will need to be factored in to the timeframes for releasing an amount under the FHSS scheme.

14. Does the released amount of FHSS contributions form part of my assessable income?

Yes, the released amount of concessional contributions and associated earnings forms part of the client’s assessable income and the client will receive a 30% tax offset.

However, the new law specifically disregards an individual’s assessable FHSS released amounts in determining their income for the following purposes:

15. If I release an amount under the FHSS scheme, do I still qualify for a First Home Owner Grant?

The First Home Owner Grant (FHOG) scheme was introduced on 1 July 2000 to offset the effect of the GST on home ownership. It is a national scheme funded by the states and territories and administered under their own legislation.

Under the scheme, a one-off grant is payable to first home owners that satisfy all the eligibility criteria.

Releasing contributions under the FHSS scheme does not disqualify a buyer from the FHOG scheme, however eligibility requirements for the two schemes are very different and eligibility for one scheme does not guarantee eligibility for the other.