A First Home Saver Account: Get Your Free Money From The Government

by Chris Lang on July 29, 2010

First Home Saver Account If you’ve read my recent article here, you know that it takes a young couple about four and a half years to save up for a deposit. I don’t know about you, but I think saving is difficult. It takes discipline. It takes sacrifices. So it only seems natural that one would want to be rewarded for saving, doesn’t it?

Well, here is your chance. It’s called the “First Home Saver Account”, something our government came up with almost 2 years ago. To tell you the truth, it was unpopular for quite a while (read more here), and now they are trying to change it. Without any further introduction, here is an article written by Timothy NG for the readers of Home I Own, where he explains everything you need to know about using the First Home Saver Account to your maximum benefit.

Owning a home is an important first step toward financial security. By purchasing a home you are making possibly the biggest investment of your life and paving the way towards a larger net worth and better financial opportunities. That being said, buying a home is also a difficult process that requires one to save a significant amount of money in order to get a good loan. The Australian government has, since 2008, offered citizens an opportunity to make their first home buying process a little easier with the First Home Saver Accounts.

The First Home Saver Accounts are an excellent option to save for your first home purchase because the Australian government actually contributes to your savings. The plan is really fabulous, but not many Australians have taken advantage of it. In order to encourage more of us to use the FHSA the government has made some recent changes to it, including bumping up their contribution. Our government know that a successful economy is built around property ownership. That is why they are working hard and spending money to help Australians buy their first home. Doing it, helps everyone in the long run. It is not a scam, just a better way to save for your first home purchase.

First Home Saver Account 2010

Increased government contribution – The Australian government will now contribute 17 per cent on individual contributions up to the first $5,000 each year. That means if you deposit $5,000 each year for four years the government will add an additional $850 per year to your account for a total of $3,400 in free money.

Overall cap – A cap of $75,000 has been introduced to the FHSA plan. That is plenty of money to buy your first home, especially when a portion of it is from government contributions. Once you meet that cap you will no longer be able to contribute, but you will still be able to collect any government contributions or investment earnings on the account.

Upfront contribution – Savers will no longer have to make a minimum upfront contribution of $1,000 to open the account.

Tax incentives – Earnings from the account will be taxed at 15 per cent. Withdrawals that are used to purchase a first home will be tax free. The government contribution of 17 per cent will not be taxed.

Resident status – In order to open an account you no longer need to be an Australian resident for taxation purposes. This allows those Australians who live overseas to open an account. The difference is that those who live overseas are not eligible for the government contribution, that is only open to Australian residents for taxation purposes.

It is easy to see how these adjustments to the First Home Saver Account can make it more appealing to Australians. These accounts are available to anyone between the ages of 18 and 65 who has never purchased or built a first home in which they live. They must also not have or previously have had a First Home Saver Account. Otherwise all an individual must do is provide their tax file number to an account provider.

Remember that if you open an account and are in fact not eligible to do so you will be penalised. Providers for these accounts are available from public-offer superannuation providers, life insurers, friendly societies, banks, building societies, and credit unions. It is up to an individual to decide from whom they want to open an account.

When a person applies for a First Home Saver Account there is a mandatory fourteen day cooling off period. This gives individuals time to consider all of their options and make certain the account is right for their needs. Once an account holder has withdrawn their money and purchased their first home they are required to live there for six months within twelve months of purchasing or completing construction on the home.

The contributions to these accounts can be made by the account holder or by someone else like an account holder’s employer. All contributions are made from after-tax income. When the Australian government makes a contribution it goes directly into the FHSA after the account holder has sent their tax return and the account provider submits the information to the ATO.

The First Home Saver Account is only accessible after four years. Over those years the account holder must have made a minimum contribution of $1,000 per year. If an account holder is purchasing a home with another account holder, only one of them will have to have met the minimum four year requirement. As long as one person meets the requirement both account holders may withdraw their funds.

Should an a First Home Saver Account holder decide that they no longer want to buy a home they may close the account and contribute all of its’ holding to their superannuation. If one chooses to transfer the balance to their superannuation they may apply for early release of the funds due to severe financial stress, terminal illness, or compassionate grounds. There are applicable penalties for not meeting the withdrawal or occupancy standards.

The First Home Saver Account in Australia is an unprecedented step toward helping Australians buy their first house. The Australian government wants more residents to take advantage of this unique plan so they have made it even better with this year’s changes.

If you are looking down the road toward buying your first home in the next few years there is simply no other savings plan that is going to give you so much in return and be so secure. If you start saving today, you can earn up to $850 per year from the government’s contribution alone. That does not take into account any interest earnings. There is no reason not to take advantage of this plan. Get your finances together and start planning to own your first home today with the First Home Saver Account.

This article was written by Timothy Ng who is a regular personal finance writer and part of the team at Credit Card Finder, a 100% free Australian credit card comparison and application service. Visit the Credit Card Finder website for more information on credit cards.

{ 1 comment… read it below or add one }

GreenlightProperties August 29, 2010 at 11:05 pm

Today’s expensive properties will be tomorrow’s bargains. Don’t be discouraged by short term obstacles. Land prices seldom go down in the long run. Obviously, there are a lot more things to consider when buying rural land as opposed to buying a house in a city. One of them is the possible problems of buying in a “boom town” area when you don’t want to be part of the boom.

Reply

{ 5 trackbacks }

Leave a Comment

Previous post:

Next post: