The Labor Government has recently passed legislation which will see the introduction of First Home Saver Accounts, as promised by Prime Minister Rudd in his election campaign. By providing a combination of lower taxes and Government contribution, the new accounts are intended to offer a simple, tax effective solution to help first home buyers kick start saving for their first home. These new accounts will be available to potential Australian first home buyers from financial institutions, including banks and some super funds, as of 1 October 2008.
According to the eligibility criteria, in order to open a First Home Saver Account, the taxpayer needs to:
be at least 18 and under 65 years of age;
have a tax file number;
be an Australian resident for taxation purposes;
have never owned a home in Australia that has been their main residence;
have never previously had a First Home Saver Account.
There are a number of restrictions and conditions that distinguish the First Home Saver Account from the regular savings products that are currently offered by financial institutions. When opening and holding an account the following conditions must be adhered to:
The account can only be in one name. No joint accounts are permitted, however it is possible for those who want to purchase a property together to combine the monies from their individual accounts.
Each individual can only have one account.
Deposits can only be made from after-tax income; this means that it is not possible to use salary sacrificing in order to make deposits into a First Home Saver Account.
Account holders must deposit a minimum of $1,000 in four separate, although not necessarily consecutive, financial years before the balance can be withdrawn.
The account limit is capped at $75,000 for the 2008/09 financial year, to be indexed for subsequent years.
All of the money that is deposited into a First Home Saver Account must remain in the account until the entire amount is withdrawn as a lump sum. Once it is withdrawn, the monies must be used within 6 months towards building or buying a first home. In addition to this, the first home buyer/s must also meet the occupancy rule. The occupancy rule dictates that the newly acquired property must be lived in by the account holder as their main residence for at least six months. The six month period must begin within 12 months of the settlement date or building completion.
If it occurs that the account holder decides not to go ahead with building or buying their first home, the money from the account must then be deposited into their superannuation fund.
There are further elements of the First Home Saver Account that set it apart from traditional savings accounts. These provide significant benefits to the account holder through offering:
Competitive variable interest rates
Any earnings on the account are taxed at a minimal rate of 15%, and this is payable by the account provider.
The Government will make a contribution of 17% on the first $5,000 deposited into the account per each year, resulting in a maximum contribution of $850.
Additionally, First Home Saver Account Holders are still entitled to apply for the First Home Owner Grant. This is yet another financial leg-up for potential first home buyers.
The First Home Saver Accounts are a welcome addition for future generations of home buyers. The accounts, with the benefit of Government contributions and reduced tax rates will make the possibility of purchasing a first home a reality for a wider range of people, in a shorter length of time.
As with any financial decision it is wise to seek the advice of professional accountants and financial planners before acting. This will help to ensure that you have considered all of the necessary facts and are making the correct choice for your situation. If you have any questions or would like advice regarding the First Home Saver Accounts or any other financial decisions contact the The Quinn Group on 1300 QUINNS or click here to submit an online enquiry.