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First home saver accounts – the pros and cons

- Friday, October 01, 2010
A first home saver account (FHSA) offers first time buyers government contributions towards their deposit as well as tax advantages. But what exactly do these accounts entail and are the rewards worth it?

A first home saver account is a resource available to would-be home buyers and is offered by many banks, credit unions and non-bank lenders.

While there are many contributions and low tax features associated with the account that will appeal to potential first home buyers, it’s important to look beneath the surface and read the fine print before you fully commit.

What you need to know

To be eligible to apply for a FHSA, you must:

  • Be aged between 18 and 65
  • Have a tax file number to present to the provider
  • Not have previously purchased or built a first home in which to live in
  • Not have or previously had a FHSA
  • Understand that penalties apply if you open an account when you do not meet the eligibility criteria.

The features of a FHS

  •  A government contribution of 17 per cent on the first $5,500 you contribute to the account each year
  •  Additional government contributions to be deposited into your account after you have placed your tax return
  •  The ability for both the account holder and another party, such as an employer, to make contributions into the account
  •  No minimum annual deposit to keep the account active
  •  Contributions not taxed when deposited into the account
  •  Interest or earnings being taxed at 15 per cent as opposed to your marginal tax rate

While you – or your children, if they’re looking to buy their first home – can benefit significantly from opening a FHSA, be aware that, benefits aside, there are also numerous guidelines that come attached.

One of these to keep in mind is that no further savings will be contributed once the account balance reaches $80,000. Another to consider is that government contributions will not be made if you decide to move overseas, even if you are still making your own contributions to the account.

Withdrawing from a FHSA also comes with its own set of stipulations. When opening an account you must be mindful that a minimum contribution of $1,000 over at least four separate financial years is required before you can withdraw funds, for example.

Also be aware that there are conditions attached that limit how you can use these funds when it comes to withdrawing them. If you decide that you are no longer interested in purchasing a property you will find that you are not entitled to regain account contributions. Penalties can apply if you withdraw these funds and do not use them to purchase a property.

Lastly, remember that the property you are withdrawing the funds for must be lived in for at least six months within the first 12 months of buying.

 
David Carruthers is a credit representative (Credit Representative Number [400226]) of BLSSA Pty Ltd (Australian Credit Licence No. 391237).