How to Use Your Super to Buy a House

The First Home Super Saver Scheme (FHSSS) is an Australian government program designed to assist eligible individuals in saving for a home deposit within their super fund. While superannuation primarily provides for retirement, this scheme allows early access under specific conditions. This article guides readers through the process, from understanding the scheme’s requirements to meeting obligations after funds are released.

Understanding the First Home Super Saver Scheme

The First Home Super Saver Scheme (FHSSS) is an Australian government initiative. It allows first-time homebuyers to make voluntary contributions into their superannuation fund, which can later be released to support a home purchase. This approach uses the tax-advantaged environment of superannuation to potentially boost savings more effectively than traditional methods.

To qualify for the FHSSS, an individual must be at least 18 years old when requesting a release of funds. Applicants must never have owned real property in Australia, including residential, investment, or vacant land. An exception exists for those who have lost property due to severe financial hardship, allowing them to still be eligible.

The scheme recognizes two types of voluntary contributions: concessional and non-concessional. Concessional contributions are made from pre-tax income, like salary sacrifice, and are generally taxed at 15% within the super fund. Non-concessional contributions come from after-tax income and are not taxed within the super fund.

Individuals can contribute up to $15,000 in any single financial year towards the FHSSS. An overall lifetime limit of $50,000 in eligible contributions applies. These contributions must also adhere to general superannuation contribution caps, which vary for concessional and non-concessional amounts.

The FHSSS calculates “associated earnings” on eligible contributions. The Australian Taxation Office (ATO) determines these earnings using a deemed rate: the 90-day Bank Bill rate plus 3%. This rate applies to contributions from their made date and compounds daily, adding to eligible contributions to determine the total maximum releasable amount.

The maximum amount an individual can release is the sum of eligible contributions and associated earnings. While the contribution limit is $50,000, the total releasable amount can exceed this due to associated earnings. For concessional contributions, only 85% is releasable (accounting for 15% tax paid), while non-concessional contributions are 100% releasable.

The property intended for purchase must be a residential premises and the applicant’s first home, not an investment property, houseboat, or motor home. If purchasing vacant land, there must be a contract to construct a home on that land. The applicant must intend to occupy the property for at least six months within the first 12 months of ownership.

Applying for a FHSSS Release

The formal process for accessing funds under the First Home Super Saver Scheme is managed directly through the Australian Taxation Office (ATO). This application involves several distinct steps, beginning once an individual has made eligible contributions and is preparing to purchase a home. The entire process is initiated and managed via the individual’s myGov account, linked to the ATO.

The first step is to request a “first home super saver scheme determination” from the ATO. This determination provides an official statement of the maximum amount that can be released, including eligible contributions and associated earnings. It is important to request this determination before signing a contract to purchase a property, as signing a contract can impact eligibility.

When requesting the determination, applicants must provide details of their eligible voluntary contributions. The ATO reviews these contributions and calculates the releasable amount. The determination letter outlines this maximum amount and provides information on the tax implications of the release.

After receiving a favorable determination, the next step is to submit a separate request for the actual release of funds. This request is also made through the myGov portal. The ATO then issues a “release authority” to the specified superannuation fund or funds.

The super fund transfers the requested amount to the ATO. The ATO withholds any applicable tax from the released amount. The remaining balance is then transferred to the applicant’s nominated bank account. This process typically takes 15 to 25 business days.

The amount released under the FHSSS is included in the applicant’s assessable income. However, it benefits from a 30% tax offset on the assessable portion. The assessable amount includes eligible concessional contributions and all associated earnings. Non-concessional contributions are not included in the assessable amount and are released tax-free.

Meeting Your Home Purchase Obligations

Once funds are released under the First Home Super Saver Scheme, specific obligations must be met regarding the home purchase. Adhering to these requirements ensures the scheme’s tax benefits are retained and avoids potential penalties. The period for purchasing a home begins from the date the FHSSS release request was made.

Applicants must sign a contract to purchase or construct a home within 12 months from their FHSSS release request date. If a contract is not signed within this initial period, the ATO may grant an automatic extension of an additional 12 months, providing a total timeframe of up to 24 months.

After signing a contract for an eligible home, the applicant must notify the ATO within 90 days. This notification confirms that the released funds are being used for their intended purpose.

If the released funds are not used to purchase an eligible home within the designated timeframe, there are two primary options. The individual can re-contribute the assessable FHSSS amount back into their superannuation fund as a non-concessional contribution. This re-contribution must occur within the 12 or 24-month period.

Failing to purchase a home and not re-contributing the funds carries tax consequences. If the funds are kept and not used for an eligible home, an additional 20% tax is applied to the assessable FHSSS amount. This tax removes the tax benefit initially gained through the scheme.