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First Home Savers Account (FHSA)
To be eligible to open a FHSA a person must:
- Be aged at least 18 and under age 65;
- Never have purchased or built a first home in Australia in which to live;
- Not hold or not have held an FHSA previously.
No minimum initial or annual contribution applies, although product providers may set their own limits.
Some of the rules include:
- The Government contribution will be 17% and will apply only to the first $5,000 contributed each year;
- Personal contributions will be able to be made to the account until the balance reaches $75,000 (including Government contributions). No further contributions once the balance exceeds $75,000;
- Earnings on the account will be taxed at 15%;
- Withdrawals:
- from the account will be tax-free if it used to purchase or build a first home in which to live, and if at least $1,000 have been contributed to this account for at least 4 consecutive financial years.
- from age 60 can be for any purpose.
- prior to age 60 can be rolled over into a superannuation fund (treated as a Non Concessional Contribution) if not used to purchase or build a first home in which to live.
Benefits are as follows:
- Contributions can be made by the account holder or any other person;
- All contributions will be treated as post-tax amounts and will not be taxed in the account;
- Earnings on the account will be taxed at 15%, consistent with Super fund rules;
- Government contribution will be 17% and will apply only to the first $5,000 contributed each year ie a maximum Government contribution of $850 pa;
- Withdrawals from the account to purchase a first home will be tax-free.
Strategy considerations
If you have young children aged 18 years and over (who have not purchased or built a first home in Australia in which to live), you may wish to open a FHSA on their behalf or encourage them to open and contribute to a FHSA. The returns below make it attractive and justifiable.
Examples
The tables below compare the end benefits of investing $5,000 pa and $10,000 pa in a FHSA and a Savings account, for a client earning $70,000 pa (ie 31.5% marginal tax rate), a client earning $90,000 pa (ie 41.5% marginal tax rate) and a client earning $200,000 pa (ie 46.5% marginal tax rate).
Contributions of $5,000 pa
|
Years |
1 |
2 |
3 |
4 |
5 |
|
FHSA |
$6,150 |
$12,668 |
$19,577 |
$26,899 |
$34,661 |
|
After-Tax Return |
23% |
14% |
11% |
9% |
9% |
|
Savings Account (31.5% tax rate) |
$5,241 |
$10,736 |
$16,496 |
$22,534 |
$28,864 |
|
After-Tax Return |
4.8% |
4.8% |
4.8% |
4.8% |
4.8% |
|
Savings Account (41.5% tax rate) |
$5,206 |
$10,627 |
$16,272 |
$22,149 |
$28,269 |
|
After-Tax Return |
4.1% |
4.1% |
4.1% |
4.1% |
4.1% |
|
Savings Account (46.5% tax rate) |
$5,189 |
$10,573 |
$16,160 |
$21,958 |
$27,975 |
|
After-Tax Return |
3.8% |
3.8% |
3.8% |
3.8% |
3.8% |
Assumptions:
Annual contribution of $5,000. The announced FHSA attracts a Government contribution of 17% of the first $5,000 contributed per year. Interest rate is 7.05% in both examples. Rates are assumed to remain constant over the investment period. All figures are after income tax (at 15% for FHSA and 31.5%, 41.5% and 46.5% for the savings account). Contributions made annually in advance.
Contributions of $10,000 pa
|
Years |
1 |
2 |
3 |
4 |
5 |
|
FHSA |
$11,449 |
$23,585 |
$36,447 |
$50,080 |
$64,531 |
|
After-Tax Return |
14% |
10% |
9% |
8% |
7% |
|
Savings Account (31.5% tax rate) |
$10,483 |
$21,472 |
$32,992 |
$45,068 |
$57,728 |
|
After-Tax Return |
4.8% |
4.8% |
4.8% |
4.8% |
4.8% |
|
Savings Account (41.5% tax rate) |
$10,412 |
$21,254 |
$32,543 |
$44,298 |
$56,537 |
|
After-Tax Return |
4.1% |
4.1% |
4.1% |
4.1% |
4.1% |
|
Savings Account (46.5% tax rate) |
$10,377 |
$21,146 |
$32,320 |
$43,917 |
$55,950 |
|
After-Tax Return |
3.8% |
3.8% |
3.8% |
3.8% |
3.8% |
Assumptions:
Annual contribution of $10,000. The announced FHSA attracts a Government contribution of 17% of the first $5,000 contributed per year. Interest rate is 7.05% in both examples. Rates are assumed to remain constant over the investment period. All figures are after income tax (at 15% for FHSA and 31.5%, 41.5% and 46.5% for the savings account). Contributions made annually in advance.
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