First Home Savers Accounts
The Treasurer and the Minister for Housing recently announced Federal Cabinet has formally approved the establishment of First Home Savers Accounts to help first home buyers save for their first home. Banks, building societies, credit unions and life insurers will be able to offer the accounts. The scheme will boost assistance for low income earners through the provision of a minimum 15% Government contribution on after-tax contributions of up to $5,000. Individual contributions of up to $10,000 (indexed) may be made each year. Contributions may be made by the account holder or another party (ie employer), on behalf of the account holder. Contributions have to be made from after-tax income. The Government contribution will be paid directly into the account, with arrangements broadly reflecting those for superannuation. The Government contribution will be made on up to $5,000 of individual contributions each year. The contribution level will be either 15 per cent, or the account holder's marginal income tax rate less 15 per cent, whichever is greater.
Individuals with incomes of up to $80,000 who contribute $5,000 to their account will receive a Government contribution of $750. For individuals on incomes above $80,000, the Government contribution will vary depending on the marginal income tax rate of the individual with a maximum benefit of $1500 being paid.
Earnings accrued in an account will be included in the assessable income of the account provider and taxed at a statutory rate of 15 per cent (rather than an individual's marginal income tax rate). Individual contributions into an account will not be taxed as they go in as they will be made from post-tax income. The Government contribution will also not be taxed.
Withdrawals will be tax free if used to purchase or build a first home to live in. To withdraw their benefits, individuals will have to contribute a minimum of $1,000 in each of at least four years.
Individuals will be able to withdraw their account balance tax free to buy or build a first home to live in. The full amount in the account will need to be withdrawn and the account closed.
Alternatively, individuals can close their account and contribute the full amount in the account to superannuation at any time.