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Disclaimer

This is not advice. Items herein are general comments only and do not constitute or convey advice per se. The information contained in these articles is for guidance only and should not be relied upon without obtaining professional advice having regard to your direct circumstances.

 

First Home Saver Accounts

If you are saving to buy or build your first home then you might want to consider a First Home Saver Account. These accounts offer a tax-effective way of saving through a combination of government contributions and concessional tax rates.

The government will match any amounts deposited into your account with a 17% contribution, up to a certain limit each year. For the 2008-2009 financial year the government contributed on amounts deposited up to $5000. That is, if you deposited $5000 into your first home saver account the government contributed $850. This limit will be indexed over time.

The tax incentive of a first home saver account is that you don’t pay tax on any account earnings. The account provider is liable to pay a 15% tax on earnings on your account, so you will not need to declare the interest or other earnings from contributions on your tax return. 

The funds from a first home saver account can only be used to buy or build a home that you will live in for at least six months and only after you have saved for at least 4 years. If you open an account and then decide not to go ahead with buying or building your first home you will have to contribute the balance of your first home saver account to your superannuation fund.

To be eligible to open one of these accounts you will need to meet all of the following conditions:

• You must be aged between 18 and 65 years
• You must have a tax file number
• You must not have previously owned a home in Australia that has been your main residence, and
• You must not have previously had a first home saver account.

If you closed a first home saver account to use the funds for your first home but the purchase or construction did not eventuate you are able to open another first home saver account within six months of closing the first one.

There is also a cooling off period of 14 days on these accounts. If you open an account and then decide not to proceed, you are eligible to open another first home saver account at a later date.

If you previously owned a property that was for investment purposes only and was not your main place of residence then you are still eligible for a first home saver account. 

First home saver accounts can only be held by individuals, you cannot hold a joint account. If you want to buy a home jointly you can use the funds from your first home saver account even if none of the other joint buyers have a first home saver account.

To be eligible to receive the government 17% contribution you have to be an Australian resident for tax purposes for at least part of the financial year.

The first home saver account does not impact on your eligibility for the First Home Owners Grant. However, you will need to apply for the grant separately to your saver account.

As these accounts are not included on your tax returns they are not taken into account in the income or assets tests that apply to various government benefits such as the family tax benefit.

When it comes time to buy or build your first home you will need to withdraw all the funds in your saver account, you can’t just withdraw some of the money. Once you have withdrawn the funds you must make the payment towards buying or building your first home within 6 months.

If you don’t need all the money to buy or build a home you must contribute the balance of the account to your superannuation. Withdrawals after four years to buy a home or to contribute to your super are tax-free.

If you use the funds for something other than buying or building your first home you may be liable for penalties.

First home saver accounts are available from certain financial institutions. Banks and credit unions may offer a deposit style account, while super funds, life insurance companies and friendly societies may offer market linked investment accounts. Different financial institutions will offer different interest rates on your savings and charge different bank fees on these accounts.

There is an overall account balance cap on first home saver accounts. Once your account exceeds the cap, you cannot make any further contributions, even if indexation increases the cap in later years. However, any interest earnings or government contributions can still be paid into the account. This cap was $75,000 for the 2008-2009 financial year and will be indexed periodically in $5000 increments.

For further details about First Home Saver Accounts click on the link below to the ATO website: http://www.ato.gov.au/Individuals/pathway.asp?pc=001/002/066&cy=1

 


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