The First Home Super Saver Scheme (FHSS) is an ATO creation that allows you to save money for a first home within your superannuation fund with concessional tax treatment. It is advantageous to most junior doctors, because if you plan to buy a house in the future, the concessional tax treatment is likely to be of benefit.
How do you put money in?
The FHSS does not create a separate pot of money or account that you contribute to. Instead, you make additional or voluntary concessional contributions into your regular superannuation account. Concessional contributions are tax-deductible contributions, and in this case they are “additional” or “voluntary” (terms vary) because they are in addition to the 9.5% that your employer compulsorily contributes.
Your tax benefits come at this stage, as these contributions are tax deductible. You will pay 15% tax on the contributions within your super fund, so the tax saving will be your marginal rate minus 15%. Keep in mind that these contributions can increase your HECS or MLS liabilities if you are also salary packaging. Consider also that your total concessional contributions (including from your employer) must stay within your $25000 cap.
You should ensure that the money contributed is invested appropriately for the timeline you are looking at buying a house in. Shares are usually purchased with a 7 to 10 year timeline in mind, to allow for volatility, so would probably not be appropriate. Cash is the simplest and potentially the most appropriate choice.
How do you get money out?
From 1st July 2018, you can apply for the release of your additional concessional contributions towards purchasing a house. The maximum released is 85% of your additional concessional contributions, as 15% goes towards contribution tax. You can include up to $30000 in total contributions and up to $15000 from any single financial year.
You can also receive “associated earnings calculated on these contributions using a deemed rate of return – this is based on the 90-day Bank Bill rate plus three percentage points”, per the ATO.
You have to pay tax on the money released as well, and include it in your taxable income. The marginal tax rate that you pay is reduced by 30% – so if you’re earning $80000, you would pay tax at 34.5% – 30% = 4.5%. The increase in income would also be subject to HECS and MLS.
Remember this is on an individual basis, so if you are a couple you can each receive this amount.
There are requirements that you must satisfy to be eligible. Read more of the details on the ATO website.
You can only have money released once, and any leftover funds that are not released will stay in your superannuation until preservation age.
The exact process of requesting a determination and the paperwork required are on the ATO website, and you should seek financial advice before making any decisions.`
An estimate of a withdrawal amount, if a doctor earning $80000 contributed $15000 per year across two financial years into either the FHSSS or a normal savings account. Both accounts earn 3% interest for 4 years, and the amount is withdrawn and withdrawal tax paid on the FHSS account. The doctor comes out about $5k ahead – a worthwhile return for a small amount of paper shuffling.
Simplified, and is not tailored to your circumstances, and does not include HECS or MLS.
There is a risk with these schemes that the Government changes the rules after you have made your contribution and before you purchase a house and withdraw the funds. Historically, the government has bent over backwards to support people affected by changes in the First Home Saver Scheme, a previous scheme for first home buyers. We think that if changes were to be made by the Government, these changes would be flagged well in advance and there would be a scheme to allow your money to be removed without penalty – however this is no guarantee.
Is the cap actually the maximum amount you can withdraw?
I’ve noticed that the ATO focuses on the maximum withdrawal amount – the maximum you are allowed to withdraw from your super fund to buy a house. If you invest your housing deposit in cash within your super fund, it seems like the after-tax return will trail the maximum withdrawal amount.
In my example above, the maximum amount of $30725 is $4000 more than the actual value of the available cash. A possible option may be that you could make further voluntary contributions to your super fund, up to the value of the maximum withdrawal amount.
This would allow you to withdraw the full maximum amount when you decide to purchase a house, whilst also providing a further tax benefit by allowing more concessional super contributions. This could save more tax, but is a more speculative option and one that you would need to discuss with your accountant.