The First Home Super Saver Scheme

The First Home Super Saver Scheme (FHSSS) allows eligible Australians to make voluntary contributions to their superannuation fund and later withdraw those contributions plus associated earnings to buy their first home.

• You can contribute up to $15,000 per year, and a total of $50,000 (increased from $30,000 as of July 1, 2022).

• Contributions can be before-tax (concessional) or after-tax (non-concessional).

• You can apply to release the funds when you’re ready to purchase a property.

  
  
  
  

✅ Pros of the FHSS Scheme

1. Tax Savings Boost Your Deposit

Voluntary concessional contributions are taxed at 15%, which is often much lower than most people’s marginal tax rate. This means more of your money goes toward your deposit compared to saving in a bank account.

2. Earnings Inside Super Can Grow Faster

Super funds generally generate investment earnings higher than bank interest, over the long term.

3. Forced Savings Discipline

Since the money is inside your super, you can’t easily dip into it for other expenses, helping you stay disciplined and on track with your home savings goal.

4. Couples Can Double the Benefit

If you're buying with a partner, both individuals can use the FHSS scheme, potentially combining up to $100,000 toward the deposit, plus earnings.

⚠️ Cons of the FHSS Scheme

1. Withdrawal Process Can Be Complex and Slow

Withdrawing your FHSS savings involves applying through the ATO, and it can take 15 - 25 business days to receive the funds. This isn’t ideal if you’re making a time sensitive property purchase. To reduce this risk, you should work with a mortgage broker to receive a pre-approval with the use of your FHSSS proceeds.

2. Earnings Are Calculated, Not Actual

The "associated earnings" you can withdraw are based on a deemed rate, not your fund’s actual investment performance. If your super fund earns more than the deemed rate (currently the Shortfall Interest Charge of 6.78% p.a.), the extra benefit must stay within your super for your retirement. If you super funds earns less than the deemed rate, and you release funds for the house purchase, you could be dipping into your super savings which were otherwise earmarked for your retirement, and a capital loss could be locked in on those investments.

3. Strict Eligibility Rules

You must:

• Never have owned property in Australia (with some exceptions),

• Intend to live in the home for at least 6 of the first 12 months,

• Use the funds within 12 months of release (can be extended to 24 months). This timeframe can be challenging if you release the funds and then are unsuccessful at auctions across a long duration This can be surprisingly common given how competitive the first home buyer market can be. For this reason, it may be more effective to only release the funds when you are successful at an auction and then negotiate at least a 60 day settlement period.
  

4. Risk of Market Changes or Personal Circumstances

If your circumstances change (e.g. job loss, change in property plans), your funds must stay in your super unless used to buy your own primary residence, as your first property.  

Case Study – Client Earning $150,000 p.a.

The following case study estimates that the total benefit of the FHSSS is $10,424 across 3.3 years (i.e. doing the maximum $15,000 contribution each year until reaching the $50,000 cap) when factoring in the different tax effects and different rates of return between current bank account cash rates and the shortfall interest charge:

 Assumptions:

·        To simplify the equation, the shortfall interest charge of 6.78% is also the assumed rate of return of the underlying investment within super.

·        To simplify the equation, a 15% tax is estimated on both income and capital gains within superannuation.

·        Both assumptions listed above are likely to slightly understate the benefit of the FHSSS in order to be conservative.

The FHSSS can be a highly effective strategy for getting into the housing market quicker than saving in a bank account alone, particularly on higher marginal tax rates (however be careful to consider division 293 tax).

If you would like to know whether this strategy would be suitable for you:

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This blog is general advice only. To receive personalised advice please book in a chat above. You should also reference the ATO First Home Super Saver Scheme.