Helping your kids buy their first home using super

If you want to give your children a head start on saving for their first home, the First Home Super Saver Scheme (FHSSS) is worth considering. It offers a tax-effective way for young people to grow a deposit more quickly and is open to anyone who meets the eligibility rules and has never owned property.

What is the First Home Super Saver Scheme?

The FHSSS allows first-home buyers to make voluntary contributions into their super fund and later withdraw those funds, plus earnings, to put toward a home deposit.

Here’s how it works:

• They can contribute up to $15,000 per financial year, and up to $50,000 total, in voluntary contributions.
• These contributions can be either:
• Concessional contributions (CC) such as salary sacrifice or personal deductible contributions
• Non-concessional contributions (NCC) which is after-tax money contributed from their own savings for which no deduction will be claimed

Children 18 or over can apply to withdraw the total voluntary contributions up to $50,000, plus notional earnings (currently 6.61%) on these contributions, to buy their first home. Whilst children must be at least 18 to withdraw an amount for their first home, they can start saving earlier.

Why use super to save for a home?

One advantage of using the FHSSS is the tax savings. Contributions made by way of personal deductible contributions or salary sacrifice reduce taxable income, which can mean less tax to pay.

In addition, any investment earnings on those contributions are taxed at only 15% inside super, compared to the saver’s marginal tax rate. When the funds are withdrawn under the FHSSS, the assessable portion is taxed at the saver’s marginal tax rate, but with a 30% offset applied. This means less tax and more savings to put toward a deposit. All this can mean more money is saved compared to saving in a regular bank account.

How parents can help

If your child is working and has a super fund, you can give them money, which they can then contribute themselves to their super fund. They may claim a tax deduction on the contribution and this may boost their after-tax income. Alternatively, they may choose not to claim a tax deduction. If your child is earning a low income and makes a personal after-tax contribution to super, they may be eligible for a government co-contribution of up to $500. Whilst this is a nice freebie, it cannot be withdrawn under the FHSSS, as it is not a personal contribution.

Important note: You cannot contribute directly on your child’s behalf. The ATO requires the contribution to come from your child's own bank account to be eligible for the FHSSS withdrawal.

When your child is ready to buy their first home, they apply through myGov to find out the maximum amount they can access under the scheme. Once they have this determination from the ATO, they can then request to withdraw up to that amount to use as part of their deposit.

The FHSSS comes with strict eligibility rules and timeframes, so it’s important to get the details right. If you’re thinking about helping your child save a deposit this way, give us a call. With some forward planning and the right contribution strategy, your child could boost their savings, cut down their tax bill, and step into their first home sooner.