Using super to buy a house

Over the last year there have been rumblings from a select group of politicians and commentators calling for changes to superannuation laws to allow Australians to access their super to help purchase their first home.
With house prices continuing to rise in many parts of Australia, being able to purchase a home is outside the reach of many, particularly younger people.

However, there is one vital fact missing from all the reports I have read relating to this conversation.

First home buyers can already access part of their super, subject to meeting certain conditions, to help meet the costs of purchasing their first home.

Known as the First Home Super Saver (FHSS) scheme and administered by the Australian Taxation Office (ATO), the scheme was introduced back in July 2018.

The FHSS scheme allows Australians to access voluntary contributions they have made to super since 1 July 2018, along with any notional earnings on those contributions.

Voluntary contributions include non-concessional contributions (made from after-tax income), personal tax-deductible contributions, and contributions made under a salary sacrifice arrangement. Compulsory employer contributions such as those made under an employer’s superannuation guarantee cannot be accessed under the FHSS scheme.

Under the FHSS scheme, an eligible person can withdraw up to $15,000 of voluntary contributions made each year, to a maximum of $30,000.

However, where super contributions have been subject to contributions tax, as is the case with salary sacrificed and personal deductible contributions, the maximum that can be withdrawn each year is $12,750.

When a person wants to withdraw funds from super to contribute towards the purchase of their first home, they need to request a FHSS Determination from the ATO. At that time, the ATO will calculate the amount that is available for release under the FHSS scheme. The amount approved for release will include a notional earnings component.

The notional earnings are not the actual investment earnings derived from the contributions. Rather the ATO applies a percentage (based on the shortfall interest charge) as a proxy for investment earnings. Notional earnings calculated on the contributions to be withdrawn are additional to the annual cap on contributions and the lifetime cap of $30,000.
When money is released from super under the FHSS scheme, concessionally taxed contributions (i.e., personal deductible and salary sacrifice contributions) are taxable on withdrawal, along with the notional earnings. However, there is a tax offset that, when applied, reduces the tax liability.

If considering the FHSS scheme to save towards the costs of purchasing your first home, there are a couple of things to remember:

1. While any number of FHSS scheme determinations can be requested from the ATO, only one request for release of funds may be made.
2. Where money is released from superannuation, a contract for the purchase of a home must be signed within 12 months. If a purchase is not made, the released amount must be returned to super, or it will be subject to additional tax.
3. A release can be made under the FHSS scheme before a suitable property has been located, however, a request for release of funds must be made within 14 days of having signed a contract to purchase.

The FHSS scheme represents a viable option for many Australians looking to save for the purchase their first home. However, like so many things in life, the “devil is in the detail”. This is certainly not a one-size-fits-all strategy.

If you are considering using your super via the FHSS scheme, consider seeking some expert advice before committing.

Note that the Federal Government announced in the 2021 Federal Budget that the maximum amount that can be withdrawn under the FHSS scheme will be increased from $30,000 to $50,000, possibly as early as 1 July 2022. However, that is still subject to the relevant legislation being passed.