What is the First Home Saver Account (FHSA) scheme?
The First Home Saver Account is a co-contribution scheme established by the Australian Government to assist first home buyers build their savings to purchase a property. It is intended for first home savers only and can only be used for the purchase or build of a first home.
Like the way superannuation is designed, the government has structured the scheme to make sure that first home buyers actually save for the purchase or build of their first home by placing restrictions on the way the accounts can be used.
No one likes their money locked away, so to make the First Home Saver Account scheme more attractive, the government offers generous con-contributions to assist savers build their deposit over the term of the account.
How do I get the First Home Saver Account?
Free money from the government is always nice, however to be eligible for the First Home Saver Account, some criteria need to be met;
- Must be aged between 18 – 65
- You must have not owned a house in Australia or Norfolk Island
- To receive the contribution, you must be an Australian Resident for tax purposes
- You must live in your home that you buy for at least 6 months
- To access funds you must meet a condition of release
The eligibility requirements are important to open account, but a saver needs to make sure that the continue to be eligible. If you reach 65 years of age or own a home before you qualify to withdraw, you may need to transfer your First Home Saver Account balance to your superannuation.
What are the benefits of the First Home Saver Account?
The biggest selling point of the First Home Saver Account is the additional payments made the government into the accounts of the savers. On top of this, there are a number of other benefits;
- Where ongoing eligibility conditions are met, the government will contribute up to $1,020 per annum (indexed) based on 17% of your personal contributions.
- Interest payable by the account is not reportable on your tax return and is capped at 15%. Tax is withheld internally by the account provider.
- The account is not included in income/asset tests that apply to government benefits
- You can contribute as much or as little as you like each year, however this may impact eligibility.
- You can purchase or build any time (however funds cannot be accessed until minimum qualifying period is met).
What are the disadvantages of the First Home Saver Account (FHSA) scheme?
- Account balance cap is currently $90,000.
- You must occupy the home purchased for a minimum of 6 months from settlement date or date of a certificate of occupancy is issued (for constructed houses)
- You cannot make partial withdrawals
- You cannot access funds until you meet minimum qualifying period
- If you do not buy a house, or do not meet the 30-day notification period, your account will be rolled into your superannuation account and will only be accessible when you meet a superannuation condition of release (generally retirement).
- You cannot contribute any more into the account after you purchase a home.
In order to access funds, you must meet the ‘four-year rule.’ This means you must contribute at least $1,000 per year for at least 4 income years. You cannot withdraw funds before this minimum contribution is made.
If you purchase or build before you have met the four year rule, you are unable to make further contributions to the account. Each income year you own the home counts towards your four year qualifying period and you can have your balance paid for your mortgage once you have met the four years. If you do not notify the account provider within 30 days of settlement of construction completion, then the account balance will be transferred to your superannuation.
Using these accounts can essentially force you to save for a house, you may have your savings restricted, however you will know that funds will be used for a house and so long as you keep your end of the bargain, the government will chip is to help you buy!
2014 Federal Budget Update: It has been announced in the 2014/15 Federal Budget that this scheme will cease from the 13th May 2014. Although simply at this stage a proposal, this scheme has been earmarked for closure and it is probably not a good idea to open!
Information Correct: March 2013. For further information on the First Home Saver Account – please refer to the ATO website.
About the Author – The Money Geek
The Money Geek is the head money blogger for MoneyGeek.com.au. With over 8 years experience in the finance industry, the Money Geek provides information over a range of topics to help families Australia-wide improve their financial literacy to become their own geeks and take control of their financial future!