Individuals taking advantage of the First Home Buyer Super Saver Scheme can begin releasing the amounts from their superannuation from 1 July 2018. To commence the process, you must send an application for the release to the Australian Taxation Office (ATO) which subsequently determines the maximum amount that should be released.
The determination of the amount will proceed as follows:-
- 85% of the concessional contributions after factoring in the 15% for the concessional tax on super contributions.
- 100% of the non-concessional contributions
- Any associated earnings from your FHSS contributions
Taxes on Withdrawal
The taxes payable on the FHSS contributions will depend on the type of contribution made, that is, whether they are concessional or non-concessional. In the case of non-concessional contributions, you will pay zero taxes on your FHSS withdrawals. The withdrawals of the concessional contributions are taxed at the contributor’s marginal tax rate with a 30% tax offset. Any associated earnings from the FHSS contributions are also taxed at their marginal tax rate less a 30% tax offset.
The associated earnings from your FHSS contributions are computed on a daily basis using a shortfall interest charge (SIC). The amounts of funds that are released by the superannuation are subsequently sent to the Australian Taxation Office which will withhold the due tax and then remit the rest to the individual.
Under the FHSS terms, the associated earnings will be subjected to the marginal tax rate of the individual less a 30% tax offset when the amounts are withdrawn. This is way more advantageous than investing your money outside superannuation and then having to pay the maximum tax at your marginal tax rate which can be as high as 45% for certain income brackets.
Counting the Contributions
The FHSS contributions are counted in the order in which they were made. It’s an ordering rule that ensures the contributions that were made in an earlier financial year will be counted first ahead of those that have been made in the later financial years.
Making Multiple Contributions in a Financial Year
It is also possible for a person to make multiple contributions in a particular financial year into an FHSS arrangement. A case in point is where the person makes both concessional and non-concessional contributions towards their FHSS in a financial year. In such an instance, the FHSS eligible non-concessional contributions are treated as having been made first before any other eligible FHSS concessional contributions. The concessional contributions will therefore be counted first (or the contributions are treated as having been made first ahead of the non-concessional ones).
When working out the eligible non-concessional contributions for an individual under the FHSS scheme, the extra concessional contributions will be disregarded.
Buying Your First Home under the FHSS Scheme
Compliance in a FHSS scheme takes a post-release approach. You will not be required to provide evidence of a contract for home purchase just prior to the release but you are required to make the purchase within 12 months after the release of your FHSS contributions and the associated earnings.
Once you have satisfied the requirements of the scheme, you should notify the Commissioner (with 28 days of meeting these requirements) of your intention to purchase your home if you have met the following conditions:-
- You have entered into a contract to buy or build a CGT asset that will be your residential premises. Do so within 12 months after the first amount has been released under the FHSS scheme.
- You have already occupied the house or are intending to occupy it as soon as is practicable.
- You plan to occupy the premises for at least a period of 6 months out of the first 12 months when it is practicable to occupy the house.
In the event that you fail to buy the house within the stipulated period after the release of funds under FHSS scheme, you can decide to re-contribute the amount back into the superannuation or simply pay a proportional tax amount that will neutralize the concessions you got via the FHSS scheme.
Planning to leverage the First Home Super Saver scheme to ramp up your savings and buy your first home? Talk to an accountant Melbourne expert that can offer you professional counsel and make the process as smooth as possible.
