I’ve had many people ask about the government’s First Home Saver Account. Most people seem to be confused about how they work, and that has resulted in the less than impressive uptake of these funds. Here are a few simple points about how you can get hold of one of these accounts and whether you are eligible for them.

First Home Saver Accounts (FHSAs) are the first of their kind in Australia and will provide a simple, tax effective way for Australians to save for their first home through a combination of Government contributions and low taxes.

You are eligible for this scheme if you live in Australia, are between the ages of 18 and 65, and haven’t bought a house before.

The Government will make additional contributions which will be paid directly into the account, after the individual has lodged their tax return and the provider has submitted the relevant information to the ATO.
The Government will contribute 17 per cent on the first $5,000 (indexed) of individual contributions made each year.
This means an individual contributing $5,000 will receive a Government contribution of $850.
No minimum annual deposit is needed to keep the account open. You can keep the account open till you turn 65. So it’s just like super, but you can use it to buy your first home!
The tax that is paid on these accounts are also the same as super at a rate of 15%. This is on the ‘Interest’ you earn, not the amount you pay it, because you’ve already paid income tax on that amount. So it’s not too bad tax wise. (normally, the amount of tax you pay on the interest is your personal tax rate.)

Account balance limit

There will be a limit of $75,000 (indexed with CPI each year) on the overall account balance.
Once you’ve reached the account balance cap, no further individual contributions will be able to be made. Any extras over the limit will be refunded to you.

Four-year savings horizon
You have 4 years that you MUSt make at least $1,000 each financial year if you want to take the money out.
If you are buying a property with someone else who also holds an account, only one of you needs to meet the four-year requirement. If one person meets this, then the other person can also withdraw their funds.

What happens when it’s time to get your money out to buy something?

You can withdraw your funds to buy or build a first home in which to live. The full amount will need to be withdrawn and the account closed.
A condition of withdrawal is that you will need to live in the home for at least 6 months within the first 12 months of purchase or completion of construction.
The other option is that you can always withdraw the funds and put it into super. But let’s be honest, there’s not a great deal of point in doing that is there?
The government says there will be penalties and fines if you don’t meet the above requirements of moving into the property.

Can you get the money out earlier?

Only by transferring the account balance into superannuation, individuals may apply to access the superannuation early release provisions of severe financial hardship, compassionate grounds or terminal illness.

Who offers these funds?

Public-offer superannuation providers, life insurers, friendly societies, banks, building societies and credit unions will be able to offer the accounts.
Banks, building societies and credit unions will be able to offer deposit accounts and superannuation providers, life insurers and friendly societies will be able to offer investment-linked accounts.

Link to Treasury: http://www.homesaver.treasury.gov.au/content/default.asp

PD