Fusion Partners Central Coast - accountants, business advisors, financial planners Institute of Chartered Accountants

The First Home Owners Savings Account (FHSA)


How to earn 22.50% return by putting your money in the bank

 

created by John Cahill

01 October 2010

 

The rising cost of housing has meant that buying a home is out of reach for many younger Australians. With the banks lending becoming even tighter post GFC, it has made borrowing even harder for young Australians.

The state and federal government have introduced several initiatives to help young Australians make housing  more affordable. One of these initiatives was to introduce the First Home Owner Saving Accounts (FHSA), which are designed to encourage and assist all Australians to get into their First home.

In recent months it has become apparent that many of our client’s were either unaware of the FHSA, or did not realise that they were eligible to participate in this government initiative.

Although designed primarily as a means of saving for a new home, the FHSA can be used as a method of increasing wealth, as the returns available are exceptional, considering the level of risk.

The FHSA's may also assist older Australians to increase their contributions to superannuation.

 

Eligibility Criteria

    You are between the age of 18 and 65;

    You have not previously purchased or built a first home;

    You do not have, or have not previously had, a First Home Saver Account; and

    You provide your tax file number to the provider.

     

    FHSA Rules

    A FHSA can be set up with a number of banks and credit unions.

    The FHSA operates just like a normal bank account and has a BSB and account number so you can transfer money into the account electronically.

    The highest interest rate currently is 5.50% by Me bank (Members Equity Bank).

    There is no minimum annual deposit required.

    You can contribute up to a maximum of $5,500 per year to the FHSA.

    The government will contribute an additional 17% of your contribution, up to a maximum of $935.  That is, 17% of $5,500. The government contribution is paid when your individual tax return is lodged.  This process works the same way as the government superannuation co-contribution.

    You are unable to make further contributions, when your account balance reaches $80,000.

    The contribution threshold and account balance cap are indexed to the CPI, and adjusted periodically in increments of $500 and $5,000 respectively.

    If you change your mind, and no longer want to use the funds to purchase your first home, you can roll the funds into a superannuation fund at any time.

     

  • FHSA Advantages

  • High return of up to 22.50%.

    No tax on contributions.

    No tax on withdrawals.

    FHSA balances are exempt from income and assets tests.

    Low risk.*

    The balance can be rolled into superannuation at any time.

    The FHSA can be used to contribute more to super, above and beyond the contribution caps.

    Interest income is concessional taxed at 15% and paid by the bank. 

 

  • FHSA Risks & Disadvantages

  • You are not permitted to withdraw for the purposes of buying a house in the first 4 years.

    If you buy a house within 4 years you are able to roll the FHSA balance into your mortgage after the 4 year period has ended.

    The FHSA operates in a manner very similar to superannuation.  Unless you use the money to buy a house, the money will be locked in your superannuation fund, until you reach preservation age, which will be between the ages of 55 and 60 depending on when you were born.

    There is always risk that the government will change the legislation making the FHSA less appealing.

 

    How to take advantage of the FHSA

    Parents may consider establishing a FHSA, as a way to assist their children purchase their first home.   The rules that require the FHSA balance to be used to either purchase a home or rolled into superannuation reduces the risk of the funds being spent inappropriately.

    Grandparents may consider establishing a FHSA, as a way to assist their grandchildren purchase their first home.   The rules that require the FHSA balance to be used to either purchase a home or rolled into superannuation reduces the risk of the funds being spent inappropriately.

    If your house is in your spouse's name for asset protection and you have never owned a home, you may  consider setting up a FHSA, and use the funds to purchase your next home (home must then be in your name or joint names) or roll into superannuation once the account balance reaches $80,000.

 

How to take advantage of the FHSA

The First Home Saving Account legislation is a golden opportunity to accrue wealth in a high yield, tax effective, low risk environment.

If you meet the eligibility criteria, it is worth considering the establishment of a FHSA.

If you require more information regarding the FHSA or would like to discuss ways you may be able to use the FHSA to meet your personal and financial goals, please contact the Fusion Partners Central Coast team on (02) 4367 3333 or info@fpcc.com.au.

 

More Resources

Question regarding Withholding Tax on FHSA Statements
http://www.fpcc.com.au/ourresources_fhsa_withholding_tax.html


Me bank FHSA website
http://www.mebank.com.au/personal/savings_accounts/first_home_saver.html


Choice magazine review of accounts
http://www.choice.com.au/Reviews-and-Tests/Money/Banking/Saving-money/First-home-saver-accounts/Page/Deposit%20account%20comparison.aspx

 

Disclaimer

* Risk - although gauged to be a low risk investment the FHSA is still subject to legislative risk (risk that the government of Australia cannot or will not contribute the 17%) and corporate risk (the risk that the deposit taking institution or bank either fails and the account balance is lost or it cannot or will not pay interest  on any balances).

This article has been prepared for clients of Fusion Partners Central Coast (FPCC) ABN 37 113 405 218 and others on request.

The article is based upon generally available information and is not intended to be, or to replace specialist advice in the areas covered but rather, the article is intended to be informative and educational only.

Although the information is derived from sources considered and believed to be reliable and accurate, FPCC, its employees, consultants, advisers and officers to the maximum extent permitted by the law disclaim all liability and responsibility for any opinion expressed or for any error or omission that may have occurred in this document.

This article may contain general advice which is defined in the Corporations Act to mean that we have not taken into account any of your personal circumstances, needs or objectives. It is therefore imperative that you determine, before you proceed with any investment or enter into any transactions, whether the investment or transaction is suitable for you in consideration of your objectives, financial situation or needs and you must therefore, before acting on any information included in this article, consider the appropriateness of the information having regard to your personal situation. FPCC recommends that you obtain financial and tax or accounting advice based on your personal situation before making an investment decision.

All investments should be made with consideration of risk after reading the FSG and PDS of the product provider, and after obtaining professional advice from a financial planner.

This article was created by John Cahill, based on legislation in place at the time.  Legislative changes may mean that this information is no longer current.  You should speak to your financial adviser.