A surprise success for the First Home Super Saver scheme (FHSS) risks creating an awkward showdown for the government, which is set against using super to help home ownership.
Figures released on request from the tax office show the scheme has quietly built up substantial support, with more than 43,000 people applying to use their super tax concessions towards buying a first home.
In 2019, the ALP announced a plan to wind up the scheme when the FHSS had managed to attract only 2000 users in its first few months of operation.
Under the scheme, first-home buyers can save for a property deposit taking advantage of lower tax in super.
The success of the scheme has been achieved against unlikely circumstances, with applicants having to pass a long list of requirements originally set by the Morrison government.
Despite these challenges, younger Australians are using their super to fund home plans – in the most recently available annual figures for the 2022 financial year, 12,460 people requested releases under the scheme for a total of $167m.
The Coalition has more recently included using super for housing as part of its housing policy. In May, Peter Dutton used his budget reply speech to reaffirm a policy commitment of allowing individual super to be used for housing.
In contrast, the ALP is against accessing super for housing. Financial Services Minister Stephen Jones has said: “Some would say that housing affordability can be addressed by raiding super, but this policy is the new clothes of an emperor who does not believe in superannuation.”
Meanwhile, the FHSS scheme has now become a key part of the mortgage finance system and is regularly suggested by advisers, especially to high-income couples with the ability to make voluntary super contributions.
Under the terms of the scheme, a first-home buyer can use voluntary super contributions to accumulate a home deposit. For most borrowers, the most popular approach is to use voluntary pre-tax (or concessional) contributions: The maximum voluntary pre-tax contributions that can be made each year is $27,500, minus the superannuation guarantee charge on salary, which is now 11 per cent.
Stuart Wemyss of ProSolution Private Clients says the FHSS scheme has proved popular because “it’s tax effective and it puts some discipline around savings, which will always help first-home buyers.”
Users can contribute a maximum of $15,000 a year under the scheme and a total of $50,000.
Separately, the earnings on money held in the scheme are not exposed to market volatility, rather they are pegged to a government deeming rate that is the 90-day bill rate plus 3 per cent.
ATO figures also suggest a significant number of potential applicants are rejected by the scheme. The ATO says reasons that applications may not succeed include “ineligible requests or the inability of the super fund to release requested amounts”.
But the scheme may find further success this year, because s it has been improved under planned new amendments.
Under the original scheme, once an individual had made an application to the tax office for release of funds under the scheme, they were not able to amend the application. But they are allowed to do so under new rules.
The mechanics of the scheme have also improved. Under new changes, individuals have 90 days rather than 14 days to request a release authority after entering into a contract to buy a home.
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