Treasury has released draft legislation to implement the 2017–2018 Federal Budget superannuation measures aimed at improving housing affordability by the establishment of the First Home Super Saver Scheme (FHSSS). The FHSSS will allow voluntary superannuation contributions made from 1 July 2017 to be withdrawn for a first home deposit starting from 1 July 2018. The scheme provides for up to $15,000 per year (and $30,000 in total) to be withdrawn from superannuation. Compulsory mandated employer contributions and contributions in respect of a defined benefit interests are not eligible for the FHSSS. Likewise, first home savers cannot withdraw existing pre-July 2017 super savings.
Withdrawals of eligible FHSSS released amounts (and associated earnings) will be allowed from 1 July 2018 onwards. The maximum FHSS releasable contributions amount is:
- 85% of concessional contributions (reflecting the 15% contributions tax paid by the fund); or
- 100% of any non-concessional (after-tax) contributions.
An FHSSS released amount of concessional contributions and associated earnings will be included in the individual's assessable but subject to a 30% tax offset (non-refundable). For released amounts of non-concessional contributions, only the associated earnings are included in assessable income (with a 30% tax offset).
An individual will receive the FHSSS released amounts after applying to the ATO and declaring eligibility to purchase or construct residential premises. The ATO will issue a FHSS determination and release authority specifying the maximum amount to be released to the ATO. The ATO will then withhold an amount of tax before releasing the FHSS amount to the individual. The amount withheld will reflect the ATO's best estimate of the individual's tax payable. If the ATO cannot make an estimate, it will withhold 17% of the FHSS released amount.
To be eligible to use the FHSSS, a person must be 18 years or over, have not used the FHSSS before and never owned real property in Australia.
A person will have 12 months after releasing the FHSSS amount to sign a contract to purchase or construct residential premises (including vacant land to be built and occupied as a residence). The ATO may extend this period by up to 12 months. It is necessary to occupy the premises as soon as practicable, and for at least six months of the first 12 months after it is practicable to do so. The person will have 28 days to notify the ATO in the approved form after they enter into a contract to purchase or construct residential premises. If the person does not buy a home (or fails to notify the ATO within 28 days of a purchase) they will be required to re-contribute the amount or pay an additional 20% FHSS tax (due within 21 days of an assessment). The GIC will also apply to the unpaid tax.
Eric receives an FHSSS determination from the ATO during 2020–2021. The FHSSS maximum release amount is $28,000, comprised of $25,500 of concessional contributions and $2,500 of associated earnings.
If Eric requests the entire $28,000 to be released in 2020–2021, ($25,500 + $2,500) will be included in his assessable income. Eric will be entitled to an offset of $8,400 (30% of $28,000).
Assuming that Eric is on the 32.5% marginal tax rate (income between $37,000 and $87,000), he will effectively pay $1,400 in tax, being 5% of the $28,000 released amount. The 5% withdrawal tax is based on Eric's marginal rate, plus Medicare levy (2.5% proposed from 1 July 2019), less 30% offset. If Eric was on the 37% marginal rate (income between $87,000 and $180,000) he would pay $2,660 in tax.