Super savings accessible for first home buyers


Wednesday 30 August 2017

A new alternative for first home deposit savings may soon be available, with the Government releasing draft legislation to implement the First Home Super Saver Scheme (FHSSS).

While the draft legislation has yet to be tabled in Parliament, if the scheme becomes law, individuals will be able to access certain superannuation benefits to assist with the purchase of their first home. Those who take advantage of the scheme may have a greater amount available as a first home deposit.

...if the scheme becomes law, individuals will be able to access certain superannuation benefits to assist with the purchase of their first home

For financial services professionals with clients looking to purchase a first home, it will be important to understand the key features and potential benefits of the FHSSS.

What superannuation benefits can be accessed?

Voluntary superannuation contributions made by, or on behalf of, a first home buyer from 1 July 2017 are proposed to be accessible under the FHSSS if it is legislated.

A ‘first home buyer’ is an individual who has never held an interest in real property situated in Australia (or certain mining, quarrying or prospecting rights).

These contributions are limited to non-mandated employer contributions (for example certain salary sacrifice contributions) and personal contributions. Mandated employer contributions, such as superannuation guarantee contributions, contributions to defined benefit interests and constitutionally protected funds, and contributions made prior to 1 July 2017 cannot be accessed.

There are no special contribution cap exemptions for first home buyers, so any voluntary contributions will count towards the relevant concessional or non-concessional contribution caps. Voluntary contributions that exceed the contribution caps are not eligible to be released under the FHSSS.

How much can be released?

First home buyers will be able to access their eligible voluntary contributions from 1 July 2018 on a once-off basis, provided they are aged 18 or more at the time of withdrawal.

The maximum contributions that may be released are limited to $15,000 per financial year and $30,000 in total, plus associated earnings in respect of those contributions. Note that where the withdrawal includes concessional contributions, only 85 per cent of the contribution will be released to account for the tax paid by the super fund in respect of those contributions. In a financial year where only eligible concessional contributions were made (ie there were no eligible non-concessional contributions made), the maximum amount of contributions that can be released in relation to that year will be 85 per cent of $15,000, or $12,750 (plus associated earnings).

If an individual makes both concessional and non-concessional contributions in a financial year, their non-concessional contributions will be counted first in determining the amount that can be released.

Example 1 (adapted from Example 1.2 in the Explanatory Memorandum to the draft legislation)

Megan makes member contributions of $36,000 in the 2017/18 financial year. She notifies her super fund that she intends to claim a tax deduction for $25,000, so the remaining $11,000 is treated as non-concessional contributions.

The $15,000 annual cap applies to limit the contributions that Megan can withdraw under the FHSSS. Megan’s non-concessional contributions of $11,000 are counted first in determining which of her contributions can be released, with the remaining $4,000 being concessional contributions. However, only 85 per cent (or $3,400) of Megan’s concessional contributions can be withdrawn, so the maximum amount that can be released is $14,400 (plus associated earnings).

The amount released will include associated earnings. The Australian Taxation Office (ATO) will calculate the amount using the Shortfall Interest Charge (currently 4.73 per cent for the September 2017 quarter). For contributions made in 2017/18, earnings will be calculated daily from 1 July 2017 until the date the ATO issues a first home super saver determination identifying the maximum amount that can be released. Earnings in respect of contributions made in 2018/19 and later income years will be calculated daily from the start of the month in which the contribution was made.

What is the tax treatment of the withdrawal?

The part of the FHSSS withdrawal that relates to concessional contributions and total associated earnings (first home super saver (FHSS) assessable amount) will be included in the individual’s assessable income and taxed at marginal rates, with a 30 per cent non-refundable tax offset applying.

The FHSS assessable amount will not be taken into account when determining eligibility for other benefits and concessions including the Family Tax Benefit, Government co-contribution, low income superannuation tax offset and spouse contribution tax offset. It will also be excluded from the income tests used to determine the Medicare levy surcharge, Division 293 tax and higher education loan program debts.

Purchasing the property

First home buyers will have 12 months (or up to 24 months if an extension is granted by the ATO) from when funds are released from superannuation to enter into a contract to purchase or construct a residential property. The purchase price of the property must be equal to or greater than the amount withdrawn from superannuation. The individual must also have an intention to move into the property as soon as practical and live in it for at least six months of the first 12 months.

Alternatively, the individual may recontribute the amount withdrawn (less any tax withheld) to superannuation as a non-concessional contribution. The contribution also needs to be made within the 12 month period.

If the individual does not purchase a property or recontribute the amount to superannuation within the required timeframe, tax of 20 per cent will be applied to the FHSS assessable amount.

FHSSS administration

The ATO will be responsible for administering the FHSSS. The process for withdrawing an amount under the FHSSS is illustrated below.

Example 2

Sally would like to purchase her first home. She receives a $6,000 bonus in July each year and decides to salary sacrifice this amount to superannuation for the next five years to build up her savings for a home deposit. She does not make any other voluntary super contributions.

In June 2022, Sally requests the ATO to make a first home super saver determination. She receives a notice from the ATO on 30 June 2022, stating the maximum amount available for release is $29,452. This amount includes concessional contributions of $25,500 (ie 85 per cent of $30,000) and associated earnings of $3,952.

Sally has 60 days from the date the notice was issued to notify the ATO she would like to have an amount of up to $29,452 released from her superannuation fund. If Sally elects to withdraw the maximum amount:

  • the ATO will issue a release authority to Sally’s super fund
  • the super fund will have 10 business days to pay the amount to the ATO
  • the ATO will include the FHSS assessable amount of $29,452 in Sally’s assessable income for the year. The FHSS assessable amount will be subject to tax at Sally’s marginal rate of 32.5 per cent (plus Medicare levy), less a 30 per cent tax offset
  • the ATO is required to withhold an amount to assist Sally meet the increased tax burden resulting from the FHSS released amount. If the ATO is able to make an estimate of Sally’s assessable income for the year, an amount of $1,473 may be withheld, otherwise a maximum of 17 per cent of $29,452 must be withheld. The ATO will pay Sally the net amount, assumed to be $27,979.

Sally then has 12 months from the date the funds are released to enter into a contract to purchase or construct a residential property, or to recontribute the amount to superannuation. She is also required to notify the ATO within 28 days of entering into a contract or making the contribution that she has met the requirements under the FHSSS.

Advice opportunities

With the closure of First Home Saver Accounts in 2015, many potential first home buyers will now simply be saving for a home deposit using a bank account in their own name. Any interest on those savings will be taxable at marginal rates.

The introduction of the FHSSS represents a significant opportunity for first home buyers, as it allows savings to be accumulated in the concessionally taxed superannuation environment. Further, by making voluntary concessional contributions, either via a salary sacrifice arrangement or through personal deductible contributions, income that would otherwise be taxed at marginal rates will generally be subject to much lower rates of tax in superannuation, meaning that typically more funds will be available for a first home deposit.

Note also that the 1 July 2017 super reform measures included removal of the 10 per cent test for deductibility of personal super contributions. As a result, individuals whose employers do not offer super contribution salary sacrifice arrangements can, from 1 July 2017, make personal contributions and claim a tax deduction. Assuming the other criteria above are met, those contributions could be available for withdrawal through the FHSSS.

The benefits of the scheme are illustrated in the example below.

Example 3

Josh has $10,000 per annum (before tax) of surplus income that he is saving to purchase his first home. If he takes that amount as salary, he will pay tax at his marginal rate of 37 per cent (plus Medicare levy), leaving $6,100 for savings each year (reducing to $6,050 if the Medicare levy increases in 2019/20). If he deposits those funds into a bank account earning 1.5 per cent per annum, after three years he will have $17,692 (in today’s dollars) for his home deposit.

Alternatively, if Josh makes a personal tax deductible contribution to superannuation of $10,000, any tax liability on the income in his own name will be offset by the tax deduction for the contribution. His superannuation fund will pay 15 per cent tax on the contribution, meaning he is now accruing $8,500 each year towards his home deposit. After three years, the maximum amount he can withdraw after tax from his super fund under the FHSSS is $24,163 (in today’s dollars).

Josh’s position after three years is shown below. By saving through superannuation, he has an additional $6,471 for his home deposit.

Position after 3 yearsOption 1: Bank accountOption 2: FHSSS
Pre-tax surplus income $30,000 $30,000
Tax rate 37 per cent + Medicare levy 15 per cent
After tax savings $18,250 (ie $6,100 + $6,100 + $6,050) $25,500 (ie $8,500 x 3)
Assumed earnings rate 1.5 per cent 4.73 per cent
Funds available after 3 years $18,587 $28,051
Tax on withdrawal N/A ($2,665)
Net funds for deposit $18,587 $25,386
Today’s dollars $17,692 $24,163


The proposed FHSSS will allow first home buyers to accumulate savings within the concessionally taxed superannuation environment. However, as the FHSSS is not yet law, first home buyers looking to save inside superannuation for their home deposit may prefer to defer making additional contributions until the scheme is legislated.

Further information

Treasury: Housing-related superannuation measures, 21 July 2017

A bill implementing the FHSSS was tabled in Parliament on 7 September 2017. See Macquarie News and legislation: Superannuation measures to improve housing affordability

Appendix - Assumptions

The following assumptions are used in each of the examples above:

  • associated earnings within superannuation are calculated based on the Shortfall Interest Charge for the September 2017 quarter of 4.73 per cent
  • interest on non-superannuation savings are calculated based on the current cash rate of 1.5 per cent
  • concessional contributions are taxed at 15 per cent inside super
  • all figures are in today’s dollars (assuming the Consumer Price Index (CPI) increases at the rate of 2.5 per cent per annum)
  • contributions are made at the start of each year.

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