First home saver accounts – what you need to know
First home saver accounts offer a tax-effective way of saving for your first home through a combination of government contributions and concessional tax rates. These accounts are available from certain financial institutions, including banks and credit unions.
To help you work out if a first home saver account will suit you, visit the Australian Securities and Investments Commission (ASIC) website – FIDO – at http://www.fido.gov.au/firsthomesaver
FIDO’s first home saver account calculator can help you work out how to reach your saving goals and compare accounts.
What is the benefit of opening a First Home Saver Account?
There are several good reasons to open a first home saver account:
• The more money you save, the more the government will contribute – up to a certain limit each year.
• There’s a tax incentive to save money for your home because you don’t pay tax on any account earnings. Earnings on first home saver accounts are taxed at 15%, but the account provider is liable to pay it.
Please note that you need to use the money you save as a deposit or to meet other costs you incur in buying or building your first home. If you decide not to go ahead with buying or building your first home, you’ll have to contribute the balance of your first home saver account to your superannuation fund.
To open one of these accounts, you need to meet all of the following conditions:
• you must be aged over 18 and under 65 years
• you must have a tax file number you can quote in your application
• you must not have previously owned a home in Australia that has been your main residence, and
• you must not have previously had a first home saver account.
Penalties can apply if you open an account when you’re not eligible.
You can still open a first home saver account if any of the following circumstances apply:
• you are transferring all the funds in one first home saver account to another first home saver account
• you closed a first home saver account but the purchase or construction of your first home did not eventuate and you are opening another first home saver account within six months of closing the first one, or
• you closed a first home saver account within the 14 day cooling off period.
You don’t have to be living in Australia to open or contribute to a first home saver account. However, you do have to be an Australian resident for income tax purposes for at least part of the financial year to receive the government contribution.
Your first home saver account is an individual account, not a joint account. However, if you want to buy a home jointly, you can do so even if none of the other joint buyers have a first home saver account.
You can still apply for a First home owner grant if you decide to open a first home saver account. However, being eligible for one doesn’t automatically mean you’re eligible for the other – there are different rules.
How it works
After each financial year, you’ll receive a government contribution based on your personal contributions during that year. When you’re ready to buy or build your first home, you withdraw the funds and close your account.
This is what you need to do:
• choose the account provider you want to have your account with and read their product disclosure statement. Banks, building societies, credit unions, life insurance companies, friendly societies and trustees of public-offer superannuation funds can all offer first home saver accounts, and
• make contributions from your after-tax income – you can’t salary sacrifice into a first home saver account.
While your first home saver account is open, you need to:
• make personal contributions of at least $1,000 for each of four financial years (not necessarily consecutive years) before you can withdraw your money, and
Other people (such as your parents or other family members) can help you out by contributing to your account.
• you lodge your tax return or notify the ATO if you don’t need to lodge a tax return, and
• your account provider has reported your personal contributions to the ATO.
Remember, you can’t just take the money out whenever you want!
When it comes time to buying or building your first home, you need to:
• withdraw the funds and close your first home saver account
• make the payment towards buying or building your first home within six months of withdrawing the funds, and
• meet the occupancy rule. That is, you need to live in your home for at least six months as your main residence. The six month period must start within 12 months of one of the following:
o your purchase settlement day, or
o the building completion date.
You can’t just withdraw some of the money. You have to withdraw all of it and close your account. If you don’t need all the money to buy or build a home, you must contribute the balance of the account to your superannuation. Withdrawals after four years to buy a home, or to contribute to superannuation, are tax-free.
When you reach the age of 65, your provider must close your account. The funds can be paid to you or, if you don’t advise your account provider before your birthday that you want this, they will contribute the balance to your superannuation.
If you change your mind and don’t want your first home saver account anymore, you need to transfer the balance of your account to your superannuation. If you’re over 60 years of age, you can withdraw the money.
If you contribute from your first home saver account to your superannuation fund:
• this contribution is not a contribution that attracts a matching government co-contribution, and
• we will take this contribution into account when deciding whether you have exceeded the superannuation contribution cap.
The information in this article is general in nature only. It does not take into account your objectives, financial situation or needs so you should consult a professional adviser, who will consider your particular financial position and requirements before making a recommendation.