First home saver accounts combine Government contributions and low taxes to provide first home buyers with a tax effective way to save for a bigger deposit.
This article reviews the benefits offered, who’s eligible, how they work and where you can open a first home saver account.
|
Benefits of a first home saver account
|
Launched on 1 October 2008, first home saver accounts are a recent initiative of the federal government designed to help address the housing affordability issue. They offer first home buyers two main benefits.
Firstly, the government makes a co-contribution of 17% on savings up to $5,000 each year. This top-up from the government is tax free and can boost your savings by up to $850 each year.
Secondly, unlike a normal bank account where interest is taxed at your marginal tax rate, the interest you earn on the savings in your first home saver account is taxed at just 15%. In addition, withdrawals from your first home saver account used to purchase or build a first home are tax free.
These incentives mean you can accumulate money in a first home saver account faster than in a regular bank account. That’s great news when you’re saving for a deposit to buy or build your first home.
|
Am I eligible for a first home saver account?
|
To qualify for a first home saver account, you must:
|
- Be aged 18 or over and under 65
- Have not previously purchased or built your first home
- Not currently have, or previously have had, a first home saver account; and
- Provide your tax file number to the first home saver account provider.
|
|
How does a first home saver account work?
|
Savings in a first home saver account can only be used to buy or build a home that you will live in (so not an investment property). All contributions must be made from after-tax income, and whilst there is no minimum annual contribution, you can usually only make a withdrawal when you have contributed at least $1,000, in each of at least four financial years. The exception is if you purchase your first home with another individual(s) who also holds an account. In this situation only one of you needs to meet the four-year requirement.
First home saver accounts have an investment cap of $75,000. Once your balance reaches this limit, you’re not permitted to make any further contributions.
Funds can only be withdrawn from a first home saver account to put towards purchasing or building your first home. The full amount must be withdrawn and the first home saver account closed.
|
What else should I know?
|
When you use funds from a first home saver account to buy or build your first home, you must live in the home for at least 6 months within the first 12 months of purchase or completion of construction.
If you buy your first home before the minimum 4 year contribution period, reach 65 years of age, or if you simply no longer want the account, the first home saver account must be closed and the balance transferred to your superannuation account.
|
Who offers first home saver accounts?
|
First home saver accounts are now offered by some of the major banks and credit unions. It is expected that superannuation fund providers will also be offering first home saver accounts soon.
|
The Australian Prudential Regulation Authority (APRA), provides an up-to-date list of first home saver account providers.
|
Where can I find out more?
|
For more information on first home saver accounts, click here to visit the ATO’s website or call 1300 788 069.
|
Share
