Using your super to buy your first home

How using the First Home Super Saver scheme could accelerate your savings journey towards buying your first home.

Saving for a home deposit can take years, especially when everyday expenses compete for space in your budget.

For many Australians, it’s one of the biggest financial challenges. Trying to set money aside for a home deposit while balancing rent, bills, car loan payments and other general living expenses can be an ongoing financial tug-of-war.

The First Home Super Saver (FHSS) scheme, launched by the former Turnbull government in mid-2017, aims to help first‑home buyers save more effectively by taking advantage of the 15% tax rate paid on concessional superannuation contributions.

Tens of thousands of Australians have used the scheme since it was first launched.

The FHSS scheme can be a powerful tool for first‑home buyers. While it requires planning and an understanding of the rules, it can fast-track the process of saving for a home deposit.

Try out legalsuper’s First Home Super Saver scheme calculator to see how much you could save through the FHSS scheme versus saving through a standard savings account.

How does the FHSS scheme work?

The FHSS scheme allows eligible Australians (see Eligibility requirements below) to make contributions into their super fund and later withdraw those contributions, along with associated earnings, to put toward their first home.

Under the FHSS scheme rules, participants can contribute up to $15,000 into their super through the scheme in any single financial year and up to a total amount of $50,000 over multiple financial years.

Concessional (voluntary) contributions into your super are generally taxed at 15% within the superannuation system. For many people, this is lower than their marginal income tax rate, which may help them save towards a home deposit more efficiently.

When your FHSS amount is withdrawn, you can also receive a tax offset on the assessable portion.

Keep in mind the FHSS scheme only applies to voluntary contributions, so your employer’s Superannuation Guarantee contributions cannot be withdrawn.

When you’re ready to buy a property, the Australian Tax Office (ATO) will allow you to release 85% of your eligible concessional contributions, and 100% of any eligible non‑concessional (after-tax) contributions you’ve made, plus a calculated earnings amount.

Before accessing your super funds, you must request an FHSS determination from the ATO and then submit a release request. This must all happen before the settlement of your property contract.

Case study: Jason

Jason is eligible for the FHSS scheme and makes salary sacrifice contributions into his super account (taxed at 15%) totalling $50,000 over four financial years and receives an FHSS determination.   As there are limits on the eligible concessional contributions that can be released using the FHSS scheme, not all of Jason’s contributions will count towards the FHSS maximum release amount.   Jason’s FHSS maximum release amount is calculated as the sum of:   $42,500 concessional contributions (being 85% of the $50,000 eligible concessional contributions), and $5,190 of associated earnings*. Jason’s FHSS maximum release amount is therefore $47,690.

Eligibility requirements

The ATO assesses eligibility on an individual basis. This means that couples, siblings or friends can each access their own eligible FHSS contributions to purchase the same property.

If you use the FHSS scheme to buy your first home, you must genuinely intend to occupy the property as a home as soon as practicable after purchase and occupy it for at least six of the first 12 months from when it is practicable to occupy it.

You can't use the FHSS scheme to purchase any premises not capable of being occupied as a residence, a houseboat, a motor home or vacant land.

However, you can use the FHSS scheme for the construction of a home on vacant land, provided ownership of the vacant land has not transferred to you before applying for a FHSS determination.

You can read more about the eligibility requirements on the ATO’s website.

What you need to know

There are some important considerations under the FHSS scheme. The rules and timing requirements can be complex, and the ATO process needs to be followed carefully.

The ATO applies a “first-in-first out” rule, which means contributions you make in an earlier financial year are counted before contributions in a later financial year. Your contributions within a financial year are counted in the order you made them.

The regulator points out that FHSS amounts that are released to you will affect your income tax in that year. You will receive a FHSS payment summary from the ATO which details the total amount released, the amount that is assessable for tax and the amount of tax that was withheld.

These amounts need to be included in your tax return in the year in which you make the request to release.

In addition, it’s important to remember that your super balance compounds inside of your account over time as a result of regular contributions and investment earnings.

Withdrawing money from your super can have a negative impact on your long-term retirement balance, because your savings will compound on a lower account balance. You can potentially reduce this impact by making additional contributions into your super over time.

How to apply for the FHSS:

• Log in to ATO online services through myGov
• Select Super, then Manage, then First home saver.

The ATO provides detailed guidance on the FHSS scheme on its website.

Could super help me buy my first home sooner?

Estimate your savings and explore different contribution scenarios with our calculator.

Try now

legalsuper can also help with any questions you have about the scheme. For personalised advice and support, reach out to us here. We can help you determine how to use super to buy your first home efficiently and meet your financial goals.

Note: *The case study assumes associated earnings of $5,190 as calculated using the ATO's deemed earnings methodology (based on the Shortfall Interest Charge rate) applicable at the time of calculation.