How will the First Home Super Saver Scheme work for SMSFs?
For those interested in purchasing their first home, the First Home Super Saver (‘FHSS’) Scheme may be an option worth exploring.
There are four broad steps that need to be taken if a member wants to take advantage of this scheme:
Step 1: Eligibility
The first step is to confirm that the member is eligible to participate in the FHSS Scheme. Broadly, the member must:
- have never held any freehold interest in land in Australia (including any long-term leasehold interest of 50 plus years). This is either in their individual capacity or through a controlled foreign company title interest;
- be 18 years or older; and
- have not previously received any payment under the FHSS Scheme.
A member may still be eligible for the FHSS Scheme if they have previously owned property in Australia if they have suffered financial hardship subject to them satisfying further conditions.
A member should also check whether their fund accepts FHSS contributions as the FHSS Scheme precludes de ned benefit funds and constitutionally protected funds from participating.
SMSF members should ensure their SMSF deed authorises and provides the relevant mechanics to deal with the FHSS Scheme including releasing FHSS amounts to the ATO.
Step 2: Contributions
Once a member has determined that they are eligible to participate in the FHSS Scheme and their fund can accept FHSS contributions, the member can begin making eligible contributions to their super fund. Broadly, an eligible contribution is:
- a concessional or non-concessional contribution that is not a mandated employer contribution;
- eligible insofar as it does not result in the member exceeding their concessional and non-concessional contributions caps; and
- eligible insofar as it does not exceed the $15,000 FHSS contribution limit in any financial year (‘FY’), commencing from 1 July 2017.
The maximum amount of contributions that may be eligible to be released under the FHSS Scheme is $30,000. When an eligible contribution is made, the relevant super fund is required to allocate the contribution accordingly and inform the ATO. The member will, in due course, be able to check their FHSS contribution balance with the ATO from time to time.
Step 3: Determination and Release
Once the member has accumulated a certain amount in their FHSS allocations, they can request a FHSS Scheme determination from the ATO. The ATO will then provide the member with an estimate of the member’s FHSS Scheme maximum release amount, which includes:
- concessional and non-concessional FHSS contributions;
- associated earnings as calculated by the ATO — shortfall interest charge rate X [FHSS contributions + sum of earlier daily proxy amounts]; less
- PAYG withholding tax
After considering the amount in the FHSS determination, the member can request a release authority from the ATO. The ATO will then generate a release authority and provide confirmation to both the member and their respective superannuation fund. Once the super fund receives the release authority, it releases the relevant amount to the ATO. The ATO receives the amount from the fund and deducts the PAYG withholding tax. After any tax is deducted, the ATO makes the net payment to the member. The member must include the FHSS amount received in their income tax return for that FY. The member is entitled to a 30% non-refundable tax offset of the FHSS amount received that FY.
Step 4: Purchase, Recontribution and Tax
Within 12 months after the release of the FHSS released amount, the member can either:
- purchase or construct a residential premises;
- recontribute the amount; or
- request another extension for up to 12 months.
If the member enters into a contract to purchase or construct residential premises, the member is required to notify the ATO within 28 days after the member enters into such a contract.
If the member decides to recontribute the FHSS released amount (eg, they do not purchase or construct within a 12 month period), they are required to inform the ATO shortly after the release of the FHSS released amount.
The recontributed amount will count towards the member’s non-concessional caps for the FY the amount was recontributed and the member cannot claim a deduction in respect of these amounts.
A member can request that the ATO extend the period for entering into a contract by up to 12 months. Alternatively, if the member retains an FHSS amount beyond the relevant 12 month, or if an extension is granted, beyond a 24 month period, they pay FHSS tax of 20% plus applicable levies on the FHSS released amount.