Law Companion Ruling LCR 2018/5, issued by the ATO on 15 August 2018, provides guidance on the First Home Super Saver (FHSS) scheme. This scheme, which commenced on 1 July 2018, is designed to help eligible individuals boost their savings for a first home by allowing them to withdraw voluntary superannuation contributions and an amount of associated earnings for the purposes of purchasing their first home. An individual can access the scheme by applying to the ATO for an FHSS determination and a release authority, if they:
- have never held a stipulated interest in Australian real property (namely, a freehold interest, a long-term lease or a company title interest) – this requirement can be waived if the Commissioner determines that the individual has suffered a financial hardship (although LCR 2018/5 provides no guidance on the financial hardship exemption);
- are aged 18 years or older; and
- have not previously requested a release authority in relation to an FHSS determination (that is, an individual can only access the FHSS scheme once).
In addition, the individual must have superannuation contributions that are eligible for release under the scheme, namely voluntary concessional or non-concessional contributions that come within the relevant contributions cap. Contributions that cannot be released include amounts that reduce an employer's potential super guarantee charge (SGC) liability, amounts required to be made under an industrial agreement, member contributions made by another person, Government co-contributions and amounts paid under a contributions splitting arrangement.
There are limits on the amount that is eligible for release ($15,000 per financial year and $30,000 in total, subject to the contribution caps). The ruling notes that while the full amount of the eligible concessional and non-concessional contributions count towards these limits, only 85% of the concessional contributions can be released.
When a request for a release authority is made, the concessional contributions and the total associated earnings identified in the FHSS determination are treated as assessable income and taxed at the individual's marginal rates. However, the individual obtains a tax concession in the form of a 30% non-refundable tax offset. On receiving the released amount, the individual has 12 months (or any further period allowed by the ATO) to either enter into a contract to purchase or construct residential premises, or make non-concessional re-contributions into superannuation. Failure to take either step (or to notify the ATO that the step has been taken) exposes the individual to a 20% penalty tax (FHSS tax). The ruling emphasises that any contract to purchase or construct a home must be entered into after the FHSS amount has been released from superannuation. If the contract is entered into before an amount is released, non-concessional re-contributions will need to be made to avoid being subject to FHSS tax.
LCR 2018/5 also explains the ordering rules, which seek to maximise the amount available for release where an individual has a combination of contributions, some of which are ineligible for release. The ruling includes three examples, involving contributions across multiple years (Example 1), concessional and non-concessional contributions made simultaneously (Example 2) and contributions where a tax deduction is claimed in one year but not the other (Example 3).