First Home Super Saver Scheme: The Tax-Smart Way to Your Deposit

Saving for your first home in a high-interest, high-tax environment can feel like running up a down-escalator. However, the First Home Super Saver (FHSS) scheme allows you to "hack" the system by using your superannuation fund as a high-powered savings account.

By saving for your deposit inside super, you benefit from a lower tax rate of 15% (compared to your usual marginal rate), which can boost your savings by $5,000 to $15,000 over the life of the strategy.

How the FHSS Scheme Works

The scheme allows you to make voluntary contributions to your super and later withdraw them (plus a "deemed" amount of earnings) to buy your first home.

• The Tax Break: If you salary sacrifice into super, that money is taxed at only 15%. If you earn $100,000, every dollar you save this way keeps roughly 17.5 to 22 cents more in your pocket compared to a standard bank account.

• Contribution Limits: You can contribute up to $15,000 per financial year, with a total maximum limit of $50,000 per person.

• The Withdrawal: When you’re ready to buy, you apply to the ATO to release these funds. You get back 100% of your after-tax contributions and 85% of your before-tax (concessional) contributions, plus "associated earnings."

• Associated Earnings: The ATO calculates "earnings" based on a set rate (the SIC rate), which is often higher than what you’d get in a basic savings account.

Is This Strategy Right for You?

The FHSS scheme is an intermediate strategy best suited for disciplined savers who are at least 12–24 months away from buying. It is ideal for:

• First Home Buyers: You must have never owned property in Australia before (including investment property or vacant land).

• Middle to High Earners: The tax savings are greatest for those in the 30% tax bracket or higher.

• Couples: Both partners can use the scheme, meaning a couple could potentially access $100,000 plus earnings for their combined deposit.

Important Risks and Rules

The FHSS scheme has very specific "order of operations" rules. If you get them wrong, your money could be locked away until retirement:

• Request a Determination FIRST: You must request an "FHSS Determination" from the ATO via myGov before you sign a contract for a home. If you sign first, you may be ineligible to release the funds.

• The 12-Month Rule: Once the funds are released, you generally have 12 months to sign a contract to buy or build a home. If you don't, you must either re-contribute the money to super or pay a 20% flat tax penalty to keep it.

• Withdrawal Tax: When you withdraw the money, the "assessable" portion (the before-tax contributions and earnings) is taxed at your marginal rate, but you receive a 30% tax offset to keep it tax-effective.

• Locked-In Capital: Remember that once you put voluntary contributions into super, they are generally "preserved." If your plans change and you decide not to buy a home, that money usually cannot be accessed until you reach preservation age (60+).

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