FIRST HOME SAVER ACCOUNTS (FHSAs)

The Government introduced legislation on October 1st 2008, allowing the establishment of FHSAs which facilitates a combination of government contributions and low taxes.

To open an account you must be between 18 - 65 years of age and never have previously bought or built a home in which to live, or not previously had a FHSA.
A client must make personal after-tax contributions of at least $1,000 in each of four seperate financial years (not necessarily consecutive) before you can withdraw the money. There is no minimum deposit to open an account and anyone can make contributions to your account - including friends and family.
A Government contribution at a flat rate of 17% on the first $5,500 (indexed) of personal contributions will apply each year - so the maximum co-contribution is $935. The Government contribution is made in arrears after the ATO receives tax reports from FHSA providers and the income tax returns of FHSA clients.
Contributions cannot be made once the account balance reaches $80,000 (indexed).
Earnings on the account will be concessionally taxed at 15% in the hands of the FHSA provider (not the client). The interest is paid by the bank, so you don't have to declare the interest on your tax return.
When you're ready to buy or build your first home, you have to withdraw the full amount (tax free) and close the account. You're also required to live in the home for at least 6 months within the first 12 months of purchase or completion of construction.
If you change your mind and don't want to use the savings to buy a home, your only option is to transfer the balance into an approved mortgage.
If you're a couple planning to buy a home, you each have to have your own account - so you'll each get the co-contribution, which is a big bonus. If you are buying a home together, the other plus is that only one of you has to meet the four year requirement before you can both withdraw the money.
A client can only operate one account at a time and, in general, once closed cannot open another FHSA.

The four year time frame is a turn-off for many people who want to get into their first home sooner rather than later. But technically it doesn't have to be a full four years. For example, you can make your first contribution on June 30 in 2010, then again in 2011 and 2012 and then make a contribution on July 1, 2012, that's just over two years. Of course, by takign this option you'll miss out on the co-contribution for the fourth year if you take out the money before June 30, 2013.

There are a number of participating banks which offer the FHSAs. The Australian Prudential Regulation Authority (APRA) has a full list of First Home Saver Account providers.

For more information on the FHSAs, you can contct us, or go to the First Home Saver Accounts Fact Sheet on the federal government website.

The table below compares the end benefits of investing $10,000 p.a. in a FHSA and an internet savings account for a client on a marginal tax rate (MTR) of 31.5% and 41.5%.

Client earning $70,000 p.a. (i.e. 31.5% MTR) Client earning $90,000 p.a. (i.e. 41.5% MTR)

Year FHSA Internet savings account Internet savings account

1 $11,175 $10,259 $10,221

2 $23,020 $21,013 $20,863

3 $35,575 $32,287 $31,945

4 $48,882 $44,105 $43,484

Assumptions:

Annual contributions of $10,000. The FHSA attracts a Government contribution of 17% of the first $5,500 contributed per year. Interest rate is 7.05% in all products. Rates are assumed to remain constant over the investment period. All figures are after income tax (at 15% for FHSA and 31.5% or 41.5% for the internet savings account).