First Home Saver Accounts (FHSAs) are the first of their kind in Australia and use a combination of Government contributions and low taxes to provide a simple, tax effective vehicle to help individuals save for their first home in which to live in — whether it’s buying an existing house or building a new house.
It’s important to not get the introduction of the First Home Saver Accounts confused with the First Home Owners Grant — they are in fact separate initiatives. FHSAs are offered by institutions including banks, friendly societies, building societies and credit unions.
How does an FHSA work?
An FHSA only accepts after tax contributions. As well as the rate of interest you earn from the financial institution offering the account, you will receive a contribution from the Government of 17 per cent on contributions, made each financial year, up to $5,000 (indexed). For example, if you contribute $5,000 in one year, you will receive $850 from the Government. The Government’s contribution is directly credited to your account once you have lodged your tax return. Providing you remain eligible, the only limit placed on your account is that the balance must not exceed $75,000. There is also no minimum annual balance required to keep the account open.
One of the benefits of this type of account is the concessional rate of tax. Because you are using after tax money, there is no tax on contributions, investment earnings (or interest) are taxed at a concessional rate of just 15 per cent and all withdrawals are tax-free. Not only do they enjoy concessional tax treatment, but FHSAs will be exempt from Centrelink’s income and assets tests.
To be eligible to open an account, you must:
- be aged at least 18 and less than 65
- not have previously owned a home in Australia in which you have lived. This test is based on the individual not on their partner
- provide a tax file number and proof of identity to the provider
- not have previously opened an FHSA.
How can you access your money?
To use the funds to buy or build your first home, you must have made contributions of at least $1,000 over four separate years (they don’t necessarily need to be consecutive years). Once you have withdrawn the funds, they must be used within six months. The house will need to be your main residence for at least six months within the first 12 months following the purchase date or completion of construction.
Only single accounts are permitted, not joint accounts. If, however, you are purchasing a property with another account holder, only one of you needs to meet the four year requirement — the other can then withdraw their funds earlier without penalty. Just like any other account, other people can make contributions on your behalf (spouse, parents or grandparents for example).
If your circumstances change, or if you change your mind and decide not to purchase or build a house, because of the concessional tax treatment, you are not able to withdraw your funds. Penalties will apply if the funds are withdrawn and not used to buy your first home. You are however, able to roll your funds over to your superannuation account. If you move overseas, you can continue to make contributions, however, you will not receive any contributions from the Government.
Eligibility to have an FHSA ends when you acquire an interest in a dwelling that is your first home or once you turn 65.
So why not help your children or grandchildren save for their first home? Talk to them about starting a First Home Saver Account.