SCC Chartered Accountants

   

Government helping first home buyers

The new government has introduced a superannuation style co-contribution saving scheme to help people save for their first home.

It’s no secret that for many Australians the dream of owning their own home is becoming a distant reality. In early February this year, the Government confirmed its 2007 federal election commitment to establish First Home Saver Accounts (FHSAs) to help people aged 18 and over to save for their first home.

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.

Originally touted to commence from 1 July 2008, the May Federal Budget saw some enhancements and it will now commence from 1 October 2008.

How does it work?

Broadly speaking, the concept is similar to the Superannuation Government Co-contribution scheme. That is, the government will add to the account and earnings will be taxed at the same tax rate as a superannuation fund ie 15%.    

How do people qualify?

To be eligible to open an account a person must:

• be aged 18 or over and be under age 65, 
• have not previously purchased or built a first home in which to live, 
• not have, or have not previously had a FHSA, and
• provide their tax file number to the provider of the FHSA

Contributions

Contributions may be made by people other than the account holder. This provides an opportunity for parents, grandparents, aunts and uncles and even family friends to help account holders build up their balance.

The Government will also make additional contributions which will be paid directly into the account, after the account holder has lodged their tax return and the provider has submitted the relevant information to the Australian Taxation Office (ATO).

The Government will contribute 17% on the first $5,000 of contributions made each financial year.  As such, on $5,000 the account holder will receive a Government contribution of $850.

Withdrawals for a first home purchase

Account holders will be able to withdraw their account balance tax free to buy or build a first home in which to live. The full amount will need to be withdrawn and the account closed.

The person will need to live in the home for at least 6 months within the first 12 months of purchase or completion of construction.

Accounts may be closed and the full amount contributed to superannuation at any time.

Penalties will apply if someone fails to meet the withdrawal or occupancy criteria.

Other circumstances

If circumstances change during the life of the account, and person no longer wishes to purchase a first home, they will not be able to access the account but can transfer the balance into superannuation and close the account. Penalties will apply if funds are withdrawn and not used to purchase a first home in which to live.

If an a person moves overseas, they can continue to make contributions into the account, but will not receive any Government contributions.

Individuals will be able to access their funds tax free once they reach age 60, consistent with superannuation.

At a Glance…

FHSA Features	With Budget 2008 Enhancements
Government contributions	The government will pay a contribution of 17% of the first $5,000 (indexed) saved each year.
Initial contribution to open account	No minimum
Annual personal contribution limit	Within lifetime limit
Lifetime limit on personal contributions	$75,000 (indexed) cap on account balance
Launch Date	1st October 2008