First Home Savers Account

One of the much missed announcements from the Australian Government over the last 6 months is the First Home Savers Accounts that where announced in the 2007 budget and after a long consultation process where gazetted on the 1st of October 2008.

A First Home Savers Account is a new account based loosely on the superannuation system that is designed to allow individuals to save money for the purchase of their first home. The First Home Savers Accounts also share similar taxation and co-contribution rates to superannuation.

So put simply a First Home Saver Account is an account held by an individual that has never owned a home can save after tax money for the specific purpose of purchasing a new home.

There are several advantages that a first home save account have over regular savings accounts:

• The government will add 17% to your contribution each year (up to a maximum government contribution of $850 per year) with no income test unlike the superannuation co-contribution;
• The earnings and capital gains tax inside the First Home Savers Account are taxed at a maximum of 15% and is payable by the account not by the individual;
• Withdrawing the money is tax free;
• Any money in a First Home Savers Account is not treated as an asset for Centrelink purposes.
• The money does not have to come from the account holder but can come from any source (e.g. tax refund, inheritance, gift regular weekly savings).

With the advantages there are always some catches. They are:

• The money saved can only be used for the purchase of an individual's first home
• To withdraw the money you must have made a contribution of at least $1000 a year for 4 years. The 4 years do not have to be consecutive
• If the account holder does not use the money for the purchase of their first house, the money can be rolled to superannuation

The eligibility rules for a First Home Saver Account are very similar to the First Home Owners Grant but the main difference is that if one member of a couple has purchased a home in the past it does not preclude the other member from using the accounts.

First Home Savers Accounts are new to the market, after only being released in October, and more developments in product will no doubt be announced over the coming months, but just as superannuation is the most tax effective way of saving for retirement, the First Home Savers Accounts is the most tax effective way of consistent saving for the purchase of a first home.