First home saver Accounts

First Home Saver Accounts

First Home Saver accounts are a new type of investment account designed to help Australians boost their savings for a deposit on their first home. This Government initiative will see super funds and banks being able to offer a superannuation style investment account that helps maximise savings through tax breaks and Government contributions. FACT SHEETS HERE

On 4 February 2008, the Government confirmed its 2007 federal election commitment to establish First Home Saver Accounts to assist Australians aged 18 and over to save for their first home.

First Home Saver Accounts are the first of their kind in Australia and will provide a simple, tax effective way for Australians to save for their first home through a combination of Government contributions and low taxes.

First Home Saver accounts will be concessionally taxed (like for superannuation), meaning that generally much lower tax will be paid on the investment or interest earnings of First Home Saver accounts, than for regular savings accounts or managed investments.

Who can open a First Home Saver account?

To open a First Home Saver account you will need to:

Be aged 18 to 65

Have not previously purchased or built a first home in Australia to live in;

Not currently have or previously have had a First Home Saver account.

Provide a tax file number.

How to get started

Under the enhanced First Home Saver account scheme announced in the Federal Budget in May 2008, there will no longer be any initial contribution required to open a First Home saver account. However, annual contributions of at least $1,000 must be made in four financial years to be eligible for the tax-free withdrawal for a first home.

How do the savings incentives work?

First Home Saver accounts will offer a simple, tax effective way to encourage and maximise saving for a first home deposit through a combination of Government contributions and low taxes.

Government contributions

First Home Saver Accounts will now attract a flat 17% Government contribution on the first $5,000 of savings made to a First Home Saver account in any year.

Low tax rates

Investment earnings (or interest) that accrues in a First Home Saver account will be taxed at a maximum of 15 per cent.

Government contributions will be tax free.

Withdrawals from a First Home Saver account used to purchase or build a first home will be tax free.

Adding to your account

There are no restrictions on who can contribute to an individual’s First Home Saver account, whether it’s the account holder, family member, employer, or friends. All contributions must be from after-tax income, and a tax deduction cannot be claimed.

There are no restrictions on who can contribute to an individual’s First Home Saver account, whether it’s the account holder, family member, employer, or friends. All contributions must be from after-tax income, and a tax deduction cannot be claimed.

There is no minimum annual contribution, but a withdrawal can only be made where contributions of at least $1,000 have been made in each of at least four years.

There will be a $75,000 lifetime account balance cap, after which no further personal contributions can be made.

Cashing out to buy a first home

Funds can only be withdrawn from a First Home Saver account to put towards purchasing a first home, or building a first home to live in.

The full amount must be withdrawn and the First Home Saver account closed at that time.

The Government is looking at ways to allow First Home Saver account savings to be used for Auctions.

Special circumstances

If any of the following situations occur, the account must generally be closed and the full amount transferred to a superannuation fund, nominated by the individual. The money is treated like any other after-tax superannuation contribution. Individuals cannot open another First Home Saver account in the future.

If an account holder buys a first home before the minimum 4 year contribution period has been reached (using other savings or earnings)

If the account holder reaches age 65

If the account holder no longer wishes to have a First Home Saver account.

In the event of death, divorce, disablement or severe financial hardship, First Home Saver accounts are generally treated the same as superannuation. In the event of bankruptcy, the balance is treated as though it were a normal savings account.

Where can I open an account?

First Home Saver accounts will be launched from 1 October 2008. The majority of accounts will be offered by superannuation funds (those who hold a public offer licence) and banks. Building societies, credit unions and life insurers will also be able to offer First Home Saver accounts.

In response to the issues and suggestions raised during the consultation period, the Government has made a number of changes to improve the design features of the accounts.

Some of the key changes are:

  • the Government will contribute 17 per cent on the first $5,000 (indexed) of individual contributions made each year;
  • an overall account balance cap of $75,000 has been introduced; and
  • the upfront contribution of $1,000 has been removed.

The Government has maintained the taxation incentives. 

  • Investment earnings (or interest) that accrue in the accounts will be taxed at 15 per cent.
  • Withdrawals will be tax free where they are used to purchase a first home to live in.

Fact Sheets

Download the Fact Sheets in Portable Document Format or view in HTML.

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PDF

First Home Saver Accounts – Fact Sheet – Account Holders
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First Home Saver Accounts – Fact Sheet – Account Providers
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