An often-misunderstood strategy, the First Home Super Saver Scheme (FHSSS) allows a first home buyer to utilise some of the tax benefits of superannuation to help with their property purchase.
In reality, the FHSSS is mostly a tax strategy. It’s up to the individual whether it’s useful for their property plans or not. It can simply be used as a way to save on tax during the period leading up to buying a first home.
This article will review the strategy, how it works, and the benefits for people on different tax rates. For reference, all information about the FHSSS can be found on the ATO’s direct website here: First Home Super Saver Scheme – ATO
What is the FHSSS?
The First Home Super Saver Scheme (FHSSS) is a government program designed to help first home buyers build a deposit by saving through their superannuation fund. It was introduced in the 2017–18 Federal Budget, with the scheme commencing on 1 July 2017 and withdrawals permitted from 1 July 2018.
The idea behind the scheme is that saving for a deposit through super can be more tax-effective than using a regular savings account. Voluntary contributions made into super can later be withdrawn, along with a set earnings rate, to be put towards the purchase of a first home.
While the scheme is intended to assist with buying a home, its actual appeal often lies elsewhere. The main advantage of the FHSSS is the tax benefit available on additional concessional contributions – those you can claim a tax deduction for, which would otherwise be locked away until retirement. The FHSSS allows these extra contributions to be accessed early, specifically just prior to a first home purchase.
It’s also possible to withdraw non-concessional (after-tax) contributions under the scheme, but this offers limited tax advantages and is less commonly the primary strategy.
The scheme only applies to voluntary contributions, it doesn’t include compulsory employer super. There are caps on how much can be contributed and later released, and funds can only be withdrawn after a formal application is made to the ATO.
To be eligible, you generally need to be a first home buyer who has never owned property in Australia. However, limited exemptions apply for those who have experienced financial hardship.
How it Works
If you’re considering using the First Home Super Saver Scheme, here’s how it works in practice:
1. Make voluntary contributions into super
Start by making voluntary contributions to your super fund. These can be:
- Concessional (pre-tax) contributions – such as salary sacrifice or personal contributions you intend to claim as a tax deduction.
- Non-concessional (after-tax) contributions – made from money you’ve already paid tax on.
Only voluntary contributions count. Compulsory employer contributions don’t qualify.
Concessional contributions are taxed at 15% when they enter your super fund, which is often lower than your marginal tax rate. This is the main tax benefit of the scheme: you receive a tax deduction at your personal rate, but the contribution is only taxed at 15% within super.
2. Lodge a notice of intent to claim a tax deduction
If you’ve made personal concessional contributions (rather than salary sacrifice), you must submit a Notice of Intent to Claim a Deduction (NOI) form to your super fund and receive their acknowledgment. This must happen before you lodge your tax return or apply for a withdrawal.
Without this step, the contribution won’t be treated as concessional, and you won’t be able to claim a tax deduction.
3. Track your contribution limits
You can contribute up to $15,000 per financial year and $50,000 in total (per person) under the FHSSS. These limits apply only to eligible voluntary contributions.
If you’re buying with a partner, they can also contribute and apply under the scheme.
Keep in mind these contributions still count toward your overall annual super contribution caps (including employer contributions).
4. Apply via myGov for a determination and release
When you’re ready to access your FHSSS savings:
- First, log in to myGov and apply for a FHSS determination. This tells you how much you’re eligible to withdraw, based on your voluntary contributions and deemed earnings.
- Once you’ve received the determination from the ATO, you can then submit a release request, which instructs the ATO to direct your super fund to release the money.
You must apply for a determination before settlement, but you’re now allowed to sign a contract before receiving the determination or making a release request.
And remember: you can only make one release request, so make sure you’ve contributed everything you intend to use before applying.
It’s important to note that concessional contributions are taxed at 15% on the way in, so only 85% of the concessional contributions (plus earnings) will be available for withdrawal.
Non-concessional contributions, on the other hand, are made from after-tax income, so 100% of those contributions (plus earnings) can be released.
5. Receive your funds (less tax)
Your super fund sends the money to the ATO, who withholds tax at your marginal tax rate minus a 30% offset, then pays the balance into your bank account.
For example, if you’re on a 32% marginal tax rate (including Medicare levy), the ATO withholds just 2% (32% minus the 30% offset).
6. Include the released amount in your tax return
The ATO will issue a payment summary via myGov. Even though tax is withheld at the time of release, you still need to declare the FHSSS amount in your tax return for the year in which you receive it.
7. Sign a contract within 12 months
You have 12 months from the date your FHSS funds are released to sign a contract to buy or build your first home. If you don’t sign a contract within this period, the ATO will generally grant an automatic 12-month extension, giving you up to 24 months in total.
If you haven’t signed a contract within 24 months, you can either recontribute the assessable amount (less tax withheld) back into your superannuation or retain the funds and pay FHSS tax at a flat rate of 20% on your assessable released amount.
Worked Example
To hopefully simplify the above, let’s look at the benefits in a specific scenario.
The Scenario
Alex earns $90,000 per year and falls into the 32% marginal tax bracket (including Medicare). Over three years, he makes voluntary concessional contributions of $15,000 per year into his superannuation account with the intention of using the FHSSS. After three years, he applies to release the funds to assist with a first home purchase.
Here’s how the numbers stack up:
The Outcome
On Alex’s $45,000 worth of contributions, the total amount withdrawn ($42,733), combined with the tax deductions received from making those contributions ($14,400), adds up to $57,133. This gives Alex a $12,133 boost to his net position from using the strategy.
This equates to a 27% return on the amount contributed. However, once you account for the fact that the ATO includes super fund earnings at a deemed rate of 7% in the withdrawal calculation, the tax benefit alone, after excluding the earnings portion, drops to around 15%, or roughly $6,750.
It’s important to note that the 7% deemed earnings rate is applied by the ATO regardless of how Alex’s super was actually invested. So even if the underlying investments didn’t achieve that return, Alex still benefits from that earnings rate when withdrawing under the FHSSS.
Alex can now use the withdrawn amount and the tax savings however he chooses. There’s no requirement for the funds to go directly towards the home deposit or settlement. The only condition is that a home must be purchased within 12 months (or 24 months with an extension) after the funds are released from super.
Some may choose to place these funds into an offset account, helping to reduce interest on their home loan while keeping the funds more accessible than if they were locked up in the home itself. This would, of course, assume they had enough for the deposit at the time of purchase without relying on the FHSSS funds.
Risks and Disadvantages
While the FHSSS can offer meaningful tax benefits, it also comes with traps that are easy to miss. If not managed carefully, the strategy can become costly or simply fail to deliver the intended benefit. Below are some of the key risks and drawbacks to consider.
Tax Rate at Withdrawal
The biggest and most misunderstood risk of the FHSSS is being in a higher marginal tax bracket at the time of withdrawal than when the contributions were made. For example, if you contribute while in the 32% tax bracket but withdraw in the 47% bracket, a large portion (or all) of the tax benefit can be wiped out.
The table below shows Alex’s earlier strategy but assumes his marginal tax rate has increased to 47% in the year of withdrawal.
You’ll notice that the tax benefits are nearly eliminated, with the only remaining gain ($5,592) coming from the deemed earnings component.
This can be particularly frustrating if the strategy was used during lower-income years but withdrawn during a one-off income spike. It’s a reminder to consider your likely future income at the time of withdrawal when weighing up using the FHSSS.
You Must Live in the Home
You’re required to move into the property and live there for at least six months within the first 12 months of ownership. If you don’t meet this requirement, you may face tax penalties or be forced to recontribute the amount back into super.
This rule makes the FHSSS unsuitable if you’re buying with the intention of renting the property, using it as a holiday home, or if your living situation may change soon after purchase.
Deemed Earnings May Not Match Actual Returns
Under the FHSSS, the ATO applies a fixed earnings rate (currently the 90-day Bank Bill rate plus 3%) when calculating the withdrawal amount. This can be a double-edged sword:
- If your super investments underperform, the deemed earnings are a bonus – a guaranteed return baked into the withdrawal amount.
- But if your super performs well above the deeming rate, those excess returns remain in super and are not part of your FHSSS withdrawal.
There’s also a practical risk: your super fund must release the deemed amount, even if your FHSSS savings haven’t grown by that much. In times of market stress, this might force the fund to sell other assets to make up the shortfall, potentially at a loss.
A common workaround is to switch your FHSSS contributions into a low-risk or cash option to avoid market volatility. Of course, this reduces your potential returns and may not suit everyone – it ultimately comes down to your risk tolerance.
Timing and Administration Matters
There are key administrative steps that must happen in the right order:
- You must submit a Notice of Intent (NOI) to claim a tax deduction before applying for a determination.
- You must receive a determination before settling on a home.
- You can only make one release request. If you withdraw too early or make a mistake, you can’t try again later.
While a determination can be amended, a release is final. A misstep in sequencing can undo the strategy entirely.
Salary Sacrifice Can Be Less Precise
Salary sacrifice involves your employer making extra contributions from your pre-tax income. It’s convenient and provides immediate tax benefits, but it’s less precise for FHSSS purposes.
Employers may report contributions with delays, and timing mismatches can make it difficult to stay within the $15,000 annual limit. Making personal concessional contributions (followed by an NOI) gives you more control and clarity over what’s eligible for release.
Contributions Are Locked In
Once the funds are released, you have 12 months, or 24 months with an extension, to purchase a home. If you don’t buy within that time and don’t recontribute the funds back into super, you’ll be taxed on 20% of the assessable FHSSS amount.
This tight timeline can create pressure when searching for a home. That’s why it’s best to only request the release once you’re confident you’ll be buying in the near future.
High Income Earners and Division 293 tax
If your income plus super contributions exceed $250,000 in a financial year, you may be subject to Division 293 tax – an additional 15% tax on concessional contributions. This effectively doubles the tax on those contributions from 15% to 30%, and in some cases can wipe out the benefits of the FHSSS entirely.
If you’re close to the Division 293 threshold, it’s worth running the numbers to determine whether the strategy still stacks up.
Conclusion
The First Home Super Saver Scheme (FHSSS) is undoubtedly complex – arguably more so than it needs to be. But that doesn’t mean it can’t meaningfully benefit first home buyers.
At its core, the FHSSS is a tax strategy. It can still be worth using even if you already have enough for a deposit. In many cases, it offers a tax-effective boost that equates to a 15% return, effectively guaranteed. That’s not something to overlook.
Of course, whether it delivers the same benefit for you depends not only on your current situation, but also on your future income and plans.
If you’d like help understanding whether the FHSSS is right for you, consider reaching out to us using the links below.
