Saving for a house deposit is one of the biggest hurdles for many first-time home buyers in Australia. According to realestate.com.au, it now takes around 5.6 years to save enough for a deposit, a 14% increase compared to a decade ago.1
To help with this challenge, the Australian Government introduced the First Home Super Saver Scheme (FHSSS) in 2017. The scheme allows first home buyers to make voluntary super contributions, which can later be withdrawn and put towards a home deposit.2
Buying your first home can involve a lot of paperwork, from applying for government schemes like the FHSSS to securing financing, finalising the contract of sale, and choosing the right home insurance for your needs.
The process may seem overwhelming. So, to help make the important step of navigating the FHSSS easier for you, we’ve done a deep dive into the scheme. From its eligibility criteria to its value as an option for using superannuation for a house deposit, here’s how it works.
What is the First Home Super Saver Scheme?
The FHSSS was introduced to offer first home buyers a tax-effective way to save for their home deposit.2
Through the scheme, you can make voluntary super contributions – either through salary sacrifice or personal after-tax contributions – up to a certain contribution cap. Later, you can withdraw these contributions – along with earnings – to put towards your house deposit.3
Using the FHSSS may reduce the amount of tax you pay while still building your super and savings for your home deposit, says Helen Baker, financial adviser, author and founder of female-focused financial advice service On Your Own Two Feet.
“By putting money into super, you may get a tax deduction against your marginal tax rate, because super is only taxed at 15%, allowing you to grow your wealth in a tax-effective environment,” says Baker.
How does the First Home Super Saver Scheme work?
To participate in the FHSSS, you need to meet certain eligibility criteria, including being a first-time home buyer and at least 18 years old.3
The scheme is available to both individuals and couples. Here’s how it works:
- Voluntary contributions: You can make extra contributions to your superannuation fund through salary sacrifice or personal after-tax contributions. The annual cap for voluntary contributions under the FHSSS is $15,000 per financial year, with a total limit of $50,000 across all years.2
- Withdrawals: Once you’re ready to buy a home, you can apply to withdraw up to $50,000 from your super, plus associated earnings on your contributions, to use towards your home deposit.3
“One advantage of this scheme is that couples can each contribute and withdraw up to $50,000, meaning you can pool up to $100,000 for your deposit if both of you take advantage of the scheme,” says Baker.
To see how much you could save using the scheme, try plugging your numbers into a First Home Super Saver Scheme calculator such as this one at the Commonwealth Superannuation Corporation.4 Your super fund may also have a calculator available to help you decide if the FHSSS is right for you.
What type of property can I buy with the First Home Super Saver Scheme?
The FHSSS can be used for most types of residential property, including vacant land that you’re going to build your home on, provided you have a contract for its construction. However, it can’t be used to purchase an investment property. The property must be the home you intend to live in, not rent out.3
You have 12 months from the date of withdrawal to buy or build your home. If you can’t do it within that time, you can either apply for an extension or recontribute the money back into your super fund. If, after 24 months you still haven’t signed a contract to buy or build a home, you’ll either have to recontribute the amount back into your super fund, or keep the released amount and pay an FHSSS tax of 20%.2
Does the scheme affect my superannuation balance?
One common concern with the FHSSS is whether it could leave you with a smaller super amount at retirement.
It’s worth noting, though, that the contributions you withdraw are only part of the voluntary contributions you made to the scheme, and not part of your employer-mandated super contributions. This means that you won’t be depleting the super that’s meant to support your retirement.3
“However, if you decide not to purchase a property after several years, the funds remain in your superannuation, meaning you can’t access them until retirement,” says Baker.
For this reason, she suggests you might want to feel confident about your plans to buy a home before committing funds to the FHSSS.
What are the pros and cons of the First Home Super Saver Scheme?
The FHSSS has its benefits and potential downsides. We asked Baker for her take on both:
Pros of the FHSSS
Potential tax savings: “By making voluntary super contributions, you take advantage of the lower super tax rate of 15%, rather than your marginal tax rate,” Baker says.
Double the benefit for couples: “As both partners can contribute, eligible couples have an opportunity to save twice as much for a deposit,” she says.
Cons of the FHSSS
Funds are locked in: “If you decide not to buy a house after contributing, your savings will remain in superannuation, which you cannot access until retirement,” Baker says. Alternately, you may choose to pay a tax equal to 20 per cent of the released amount of superannuation to offset the tax benefit you received from using the FHSSS.2
Legislation risk: “While the scheme is a great opportunity right now, changes in government policies could alter the benefits in the future,” she says.
Recent updates to the FHSSS
Since its introduction, the FHSSS has seen some updates to improve its accessibility. In July 2022, the total withdrawal limit was increased from $30,000 to $50,000.2
Additionally, the process to apply for a release of funds was streamlined, with most applications now processed through the Australian Taxation Office (ATO).3
Additional schemes for first-time buyers
In addition to the FHSSS, several other schemes and grants are available to first home buyers across the country.
These include the states’ and territories’ various first home buyers grant programs, the Regional First Home Buyer Guarantee, and stamp duty concessions. Depending on where you live, you may be eligible for a combination of federal and state-level support to help you get into your first home.
So, in summary, if you’re considering the FHSSS, it’s helpful to be aware of the eligibility criteria and think about how it might fit into your overall home-buying plan. With careful planning, you may be able to take advantage of lower taxes, higher savings growth, and other financial support options from federal and state governments.
When the time comes to buy your first home, you might be thinking about protecting it with insurance – in fact, some lenders make insurance a condition of your home loan.5
Youi offers a variety of home insurance options, including Buildings insurance and Contents insurance, all designed to be a bit more you-shaped. Consider starting a quote today.
The information provided in this article is general in nature only and has been prepared without taking into account your particular financial needs, circumstances and objectives and should NOT be construed as financial, taxation or legal advice.
1 Source: realestate.com.au – Savings slog: How long it takes a first-home buyer to save a deposit, October 2024
2 Source: Australian Government – First Home Super Saver Scheme
3 Source: Australian Taxation Office – First home super saver scheme
4 Source: Commonwealth Superannuation Corporation – First Home Super Saver Scheme (FHSSS) calculator
5 Source: Canstar – Do I need home insurance before settlement?, March 2024
