The primary purpose of Super is to save funds for your retirement. However, with the rising house prices, the government has allowed limited access to super money to buy your first home with it.
But what are the benefits or restrictions if you want to use it to buy your first home? And how can the FHSS (First Home Super Saver) scheme assist you?
Assistance of FHSSS to First Home Buyers
Since buying a first home using super is often challenging, the government initiated the FHSS scheme. Under this, the first home buyers can make voluntary contributions to their super to save for their first home. They can add $15,000 to $50,000 extra every year to their super.
This assistance allows them to get tax benefits, like concessional contributions, which would only be taxed at 15%. Further, the assessable FHSS amounts will also benefit from a 30% tax offset.
Furthermore, buyers can withdraw 100% of their eligible voluntary contributions that don’t qualify for a tax deduction. However, this will only happen in the case of non-concessional contributions. They can also make super contributions through salary sacrifice and withdraw 85% of concessional contributions.
The scheme also has flexible eligibility criteria that don’t require you to be an Australian citizen or resident for tax purposes.
But how does this scheme work?
So, you are not required to join FHSS directly, rather, you can simply either sacrifice your pre-tax income or make voluntary contributions to your super. Accordingly, you can then withdraw the amount to buy your first home as per the above-discussed criteria.
Restrictions While Buying a First Home
Despite such great assistance, the FHSS scheme also imposes certain restrictions, such as
- A vacant land: You can’t buy vacant land until you have signed a contract to build your first home within 12 months of applying for an FHSS release.
- Unlivable properties: You cannot consider properties that cannot be occupied for residence.
- Houseboats and Motorhomes: The FHSSS also restricts these properties as first homes.
Eligibility Criteria of FHSSS
The FHSS scheme is not for everyone, and you need to meet specific eligibility criteria applicable to each individual.
- The first home buyers must be 18 years of age.
- They must not have held any other property before in Australia, including investment property, commercial property, vacant land, or land leases.
- The property title they buy must be named after them.
- The first home buyer hasn’t submitted a complete release request for his FHSS determination.
- They must have applied for eligible contributions on or after 1st July 2017.
Pros of Using Super To Buy First Home under FHSSS
- Tax savings: When you contribute to your super through salary sacrifice, it’s taxed at 15% with a 30% offset. This is often lower than your regular tax rate. Additionally, you will get a tax offset when withdrawing, helping you save money faster.
- Flexible in Contributions: First-home buyers can flexibly contribute to their super either by sacrificing their salary or contributing voluntarily. This will help them speed up the process of buying their first home.
- Discipline-structured savings: Contributing to super will ultimately provide a disciplined approach to your savings. This will let you work consistently to improve your savings for your first home.
- Buy a home with a partner: Under the FHSS scheme, you can even buy a home with a partner. This allows your partner to add another $15,000 yearly to her/his super, improving savings for the home deposit.
Cons of Using Super To Buy First Home
- Lower take-home income: An extra contribution to super will reduce your take-home income.
- Time restrictions: ATO norms restrict first home buyers to informing them about buying a home within 28 days of accessing super via FHSSS. If they fail to do this, they may have to pay additional tax.
- Time constraint: The ATO typically releases the Super for your deposit within 20 days. So, keep that in mind regarding settlement of your property.
- Applies only to buying a first home: FHSS does not permit other property purchases and you can only buy your first home with it.
- Maximum withdrawal limit: Under FHSSS, there is a withdrawal limit. For example, you can only withdraw 100% of your non-concessional contributions and 85% of concessional contributions.
Steps to Apply for FHSS
Since you know the pros and cons of using Super to buy your first home under FHSS, you should know its procedure.
- Understand FHSS eligibility rules: Primarily, learn everything about FHSS eligibility, as mentioned in the above sections.
- Voluntary contributions to your super: Make additional voluntary contributions to your super between $15,000 and $50,000. You can do this either through salary sacrifice before tax or through after-tax contributions subject to maximum yearly contribution and total withdrawal.
- Applying for FHSS determination: After doing the above, apply for FHSS determination through the ATO portal. Then, based on the given details, you will get the maximum withdrawal amount from your super from ATO.
- Make Withdrawal Request: Request to release your funds to the maximum limit, which is often called an FHSS release request. The request may take 15 to 25 days to get approved. Once approved, your amount will be credited to your nominated bank account.
- Use your super funds to buy your first home: After receiving your requested super funds, you can sign a contract to buy your first home. However, you must move into the house within 12 months and live in it for at least 6 months. If unable to do so, you can request either an extension or return the money to your super.
Alternative Options To Fund Your First Home
While learning about using Super to fund your first home, you should know about alternative options.
Guarantor Home Loans
You can prefer guarantor home loans when funding your first home. In this, a guarantor provides you with the additional security to your home loan. He provides his or her assets, like property, as collateral in the case of borrower defaults. This lets first-home buyers buy their first home soon while avoiding LMI (Lender Mortgage Insurance).
FHOG (First Home Owner Grant)
The government, to help first home buyers, also offers another scheme called the first home owner grant. In this case, the first homebuyers can get a government grant depending on the state in which they are planning to buy their first home.
Home Guarantee Scheme
It is another aid that applies to first-time homebuyers, and it has three schemes under it.
- First home guarantee scheme
- Family Home Guarantee Scheme
- Regional home guarantee scheme
This allows the eligible home buyer to purchase their home with a small deposit of 5% and avoid paying LMI.
Conclusion
Hence, first-time homebuyers can take advantage of FHSSS to buy their first home. However, the buyers must take into account cash flow, time limits, and other factors before applying.
For more guidance on using super for property investments, contact us at Nfinity Financials or call us at 1300 GET LOAN or 0456 456 267.
FAQs
Q1. Can you use your super to buy your first home?
Yes, you can use your super to buy your first home, but only under the FHSS scheme, subject to its eligibility criteria.
Q2. Will you still qualify if you owned a home before?
You may qualify for the benefit under FHSS if you lost your property due to financial hardship.
Q3. Is it worth buying an investment property with super?
This greatly depends on your financial goals when investing in property through Super (via forming a Self Managed Super Funds). For example, you may get tax benefits with long-term capital gains. There’s much more to SMSF and you need to understand more regarding borrowing, taxation, compliance etc. before taking this route..
Q4. Do I have to pay tax on my FHSS withdrawal?
Yes, the withdrawn amount is taxed at your marginal tax rate minus a 30% offset. That’s why you save more for your home deposit.
Q5. What happens if you don’t buy a home within 12 months?
You can either request an extension of another 12 months or return your funds to your super after tax deductions.
