First home saver accounts

Article posted by: Nathan

March 09, 2009 1AM

Need assistance in saving for your deposit on a first home?  Not only does the First Home Owners Grant (FHOG) help, but First home saver accounts (FHSA) can also be a tax effective way of getting your first home.

First home saver accounts (FHSA) are part of the Federal Government’s 2007 election commitment to provide a simple, tax effective way to help first home buyers to save for their first home. These accounts will be available from financial institutions (including banks and super funds) on 1 October 2008.
These accounts are the first of their kind in Australia, and will help Australians aged over 18 save for their first home, using a combination of government contributions and reduced taxes.

Who is eligible for a FHSA?
You can open an account if you meet all of the following criteria:
▪ are aged 18 or over and under 65
▪ have not previously purchased or built a first home in which to live
▪ you are an Australian resident for tax purposes
▪ do not have, or have not previously had, a First Home Saver Account
▪ provide your tax file number to the provider.
▪ If you open an account but are not eligible to do so, penalties will be imposed.

What are the contribution arrangements?
Account holders and other parties (such as an employer) on behalf of the account holder may make contributions to the account. Contributions will be made from after-tax income.
The Government will make additional contributions which will be paid directly into the account, after the individual has lodged their tax return and the provider has submitted the relevant information to the Tax Office.
The Government will contribute 17% on the first $5,000 (indexed) of individual contributions made each year. This means an individual contributing $5,000 will receive a Government contribution of $850.
 
No minimum annual deposit is needed to keep the account open. The account can remain open for as long as necessary or until the account holder turns 65, at which time it must be closed.

What is the tax levy on FHSA accounts?
▪ Contributions will not be subject to tax when contributed to an account. ▪ Investment earnings (or interest) will be taxed at a rate of 15%.
▪ Withdrawals will be tax free.
▪ FHSA balances will be exempt from the income and assets test.

Is there a limit to how much money I can have in my FSHA?
Yes, the overall account balance will be limited to $75,000 (indexed). If an individual reaches the account balance cap, no further individual contributions will be able to be made. Earnings and any outstanding Government contributions will still be able to be credited to the account after this time.
Contributions that exceed the limit will be returned to the account holder.

How do I withdraw my money?
To withdraw your funds, you must have made a minimum contribution of $1,000 every year for at least four separate financial years.
If you (as the account holder) are purchasing a property with another individual(s) who also holds an account, only one account holder needs to meet the four-year requirement. If one person meets this, then the other individual(s) can also withdraw their funds.

Withdrawals for a first home purchase
You will be able to withdraw your 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. You are required under the conditions of the FSHA to live in the home for at least 6 months within the first 12 months of purchase or completion of construction.
You can close your account and contribute the full amount to your superannuation fund at any time.
Penalties will apply to individuals where they fail to meet the withdrawal or occupancy criteria.

Other circumstances
If your circumstances change during the life of the account so that you no longer wish to purchase a first home, you will not be able to access the account but you 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 you move overseas, you can continue to make contributions into the account, but you will not receive any Government contributions.
You will be able to access your funds tax free once you reach age 60, which is consistent with superannuation.

Early release provisions
By transferring the account balance into superannuation, you may apply to access the superannuation early release provisions of severe financial hardship, compassionate grounds or terminal illness.

Who can I open a first home saver account with?
The following financial institutions will be able to offer first home saver accounts:
▪ public-offer superannuation providers
▪ life insurers
▪ friendly societies
▪ banks
▪ building societies
▪ credit unions.
Banks, building societies and credit unions will be able to offer deposit accounts and superannuation providers, life insurers and friendly societies will be able to offer investment-linked accounts.
Source: The first home saver account website,

Morris Accounting – Call us today so we can help you set up a first home saver account
Phone: 07 3105 5926
Email: info@morrisaccounting.com.au 
www.morrisaccounting.com.au

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