When the First Home Super Saver scheme was announced, some superannuation purists expressed some rightful indignation. They argued that super should be used only to fund retirement and not to assist people in buying their first home. Putting aside this criticism, the FHSS could provide professional planners with a new strategy to assist clients.
Like anything to do with income tax and superannuation, the FHSS scheme is not available to everyone, and the tax treatment of withdrawals differs depending on how the FHSS contributions are made. The scheme commenced on July 1, 2017, with amounts contributed eligible to be withdrawn from July 1, 2018.
The scheme is designed to assist only first-home buyers who are purchasing a property to live in or one they intend to live in as soon as practicable after purchasing it. The property must be lived in for at least six of the first 12 months that it is owned.
Contributions under the scheme do not include compulsory employer contributions, only voluntary contributions made as either salary sacrifices, personal deductible super contributions, or non-concessional super contributions.
An individual can contribute up to $15,000 a year in FHSS contributions, with a maximum of $30,000 in total. Due to their special nature, super funds, including self-managed super funds, will need to set up an FHSS super account for members. This is because the amount that can be released not only includes the $30,000 maximum, but also accumulated income earned on those contributions.
The $30,000 that can be withdrawn is made up of 100 per cent of non-concessional contributions and 85 per cent of concessional voluntary tax-deductible contributions.
FHSS contributions can be made from any age but cannot be accessed to purchase a property until a person turns 18. An FHSS super account can be used to purchase a property only as long as the person has never owned a property in Australia previously, including:
- one held for investment purposes
- vacant land, commercial property
- a lease of land in Australia
- or a company title interest in land in Australia.
The government has recognised that there are some people who, due to circumstances beyond their control, end up, in effect, being first-home buyers again. This has resulted in a financial hardship provision being included in the regulations.
The hardship provisions will allow an individual or a couple to apply to the Australian Taxation Office for access to the FHSS scheme. The types of events the ATO will consider under the financial hardship provisions, where someone has lost ownership of all property they have held, include:
- bankruptcy
- divorce, separation from a de facto partner, or relationship breakdown
- loss of employment
- illness
- being affected by natural disaster
- being eligible for early access to superannuation.
Where the financial hardship provisions apply an application is made by completing a “first home super saver scheme – hardship application” form and lodging this with the ATO. At the time of lodging the form evidence should be provided that demonstrates the link between the loss of all property interests and the hardship event that occurred.
If the ATO accepts that a financial hardship event has occurred, access to the hardship provisions will be granted only if, at the time of lodging the application form, that person or couple making the application:
- have not acquired a subsequent interest in real property in Australia
- are over 18
- have not previously requested a release under the FHSS scheme.
This last restriction also applies to people who qualify under the standard conditions for the scheme. This means that the benefit of using tax-effective voluntary contributions and after-tax non-concessional contributions can only be accessed once.
How much of a benefit the FHSS scheme will be for clients depends on a number of factors, not least of which is the income tax treatment of amounts withdrawn under the scheme, which I will explore in my next column.
