The First Home Super Saver Scheme (FHSS), which received royal assent on 13 December 2017, enables individuals over 18 who have never owned a home to apply to release voluntary contributions from their super fund to buy their first home.
From 1 July 2018, individuals have been able to withdraw these voluntary contributions along with the deemed earnings, for a deposit, with withdrawals taxed at a marginal tax rate less a 30 per cent offset.
Fitzpatricks Private Wealth head of technical services, Colin Lewis said the ATO has been approached to determine the legitimacy of a strategy that capitalises on the tax treatment of voluntary concessional contributions.
“One thing I think people need to be mindful of, and I know of advisers who have talked about doing this, is putting a concessional contribution and then sort of virtually immediately withdrawing it just to get the tax concession,” said Mr Lewis.
“Technically, to get a deduction for a contribution, you need to be making a contribution towards your retirement savings so if you are putting it in on day one and pulling it out on day two, there is that question about whether that it is a legitimate strategy so until we get a response from the ATO, I’d be cautious of doing that.
“That’s not to say don’t put it in today and pull it out in a couple of months when you want to buy a house but today-and-tomorrow type scenarios, I’d be wary of at this point.”
Administrative complexity
ATO data indicates that during the period 1 July to 6 August 2018, 1,449 FHSS determinations were made and 592 people requested a release of their FHSS amount.
In the same period, the ATO issued 498 release authorities to super funds totalling $5,341,856. This equates to an average requested release amount of about $10,727.
Mr Lewis said that while the actual value was not “significant”, he could understand the attraction of using the scheme simply because it exists.
However, he believes the administrative technicalities of the scheme may continue to catch some taxpayers out, including the 25 business days it takes for the ATO to release the funds.
“The administrative complexity is certainly the downside to the whole scheme and I think people need to be aware of how that works so they don’t get caught out,” said Mr Lewis.
“If you’re contributing to the scheme and you find a place on the weekend that you want to buy, you can’t turnaround and put a bid or deposit down if you haven’t already got a release of your money and getting that release can take 25 business days, which is five weeks so you really got to plan in advance.
“You’ve got 12 months to find a place or you get penalised tax-wise so I think it is the case of people may find it attractive because the numbers do stack up, although they are not significant by any stretch of the imagination, but nevertheless there is an advantage to doing it so why not?”
