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Mortgage

First Home Saver Account Worth Considering?

Glenn Fairbairn
Director/Private Client Adviser
21 Jun 2012

When saving for their first home most individuals invest in cash or fixed interest as it provides capital security and reliable income. An alternative option may be a first home savers account (FHSA). These accounts are provided by most banks, credit unions and life insurance companies and offer a tax effective way to accelerate your savings for a first home purchase.

What are the benefits of a FHSA?

The major benefit of a FHSA is that for the first $5,500 you contribute each financial year, the government will make a contribution of 17% of that amount, which equates to $935. There are not many investments that can offer that type of guaranteed return.

In addition to the cash contribution made by the government, investment earnings within a FHSA are taxed at a maximum rate of 15% within the account.

Personal after-tax contributions of any amount can be made to the FHSA provided the account balance is under $85,000. Once the balance reaches $85,000 no further contributions can be made even if the balance later falls below the cap due to poor performance, fees or indexation of the cap.

What are the conditions?

Funds withdrawn from a FHSA must be used ‘in acquiring a qualifying interest in a dwelling’ within 6 months, and cannot be used to renovate an existing investment property that you plan to move into. Furthermore the property must be your main residence for six continuous months within a twelve month period that commences when the property is acquired.

Savings held in the FHSA cannot be used to buy a home unless it has been invested in the FHSA for at least four years and at least $1,000 has been contributed each year. If you happen to buy your first home before the 4 year period is up, you can withdraw funds at the end of the 4 year period and use them toward your mortgage.

If you change your mind and no longer wish to buy a first home then the money in the FHSA must either:

1)      remain in the FHSA until you reach 60 at which time you can withdraw the money;

2)      remain in the FHSA until you reach 65 at which time the money must either be paid to the client or transferred to superannuation; or

3)      be transferred into superannuation (at any time). 

Should you open a FHSA?

FHSA’s can provide a great incentive to first home buyers to accelerate their savings plans. Government contributions of up to $935 per annum and concessionally taxed investments earnings can all play their part in enabling you to build a deposit and purchase your first home sooner.

However, remember funds in an FHSA can only be used to purchase a first home, therefore, before committing to a FHSA it is important to consider whether you may need to access your savings for other major expenses i.e. overseas trip, motor vehicle, etc. 

Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.