First Home Saver Accounts
Those people who are renting but want to buy their own home will be well aware of Australia’s housing affordability crisis. The Rudd Government has a scheme to help people save a deposit for their first home through a combination of Government contributions and low tax rates.
On October 1st, 2008 the Australian Federal Government launched the First Home Saver Account scheme (FHSA) with the aim of making home ownership easier to achieve. It has strict eligibility requirements, but if used correctly, people saving for a home can receive $3,400 free from the Government after four years of saving, or $6,800 if a couple open an account each.
To be eligible to open a FHSA you need to be at least 18 but under 65, have not previously purchased or built a first home in which to live, have no other FHSA (only one per person) and have an Australian tax file number.
However if you are saving for your first home and meet the eligibility requirements don’t rush out and open one yet. Read on, as there are a raft of conditions to be satisfied to make the most of this type of account. The most important is that you have the account for four years before you can withdraw your funds. If you are planning to buy a home in a shorter timeframe than that then this account type is not for you.
A minimum contribution of $1,000 a year (about $20 per week) needs to be made for at least four separate financial years, and there is a limit of $75,000 on the overall account balance. The Government will contribute 17% on the first $5,000 of contributions made each year, which means you could get up to $850 per year as a Government contribution, or $3,200 over a four year period if you put away $100 each week.
Interest on the account will be taxed at a rate of 15 percent and not your marginal rate, and FHSA balances will be exempt from income and assets tests. You can keep your account open for as long as you want until you reach age 65 when it must be closed.
When you are ready to buy or build a first home you must withdraw the full amount and close your account. You will need to live in that home for at least 6 months within the first year after buying or building or you will be penalised. If you no longer plan to purchase a home you can not withdraw money from a FHSA and must transfer the balance into superannuation.
This is an excellent product for people with several years to go before they plan to buy a home as it teaches them how to save – something most Australians don’t know how to do. Encourage an 18-year-old to open one. If you can afford to, put $100 a week into the account to give you the maximum benefit, and make sure you read the fine print on fees and charges before you sign up with an institution, as different interest rates and terms are on offer. As of 13 October 23 institutions were offering FHSA and that number will steadily grow.