Account providers and their types:

Once an account holder opens up a FHSA account, it becomes easy for the account provider to administer the individual. It is the obligation of the account provider to ensure that the applicant is eligible for opening such an account. After they have gathered all necessary information in this regard and are satisfied that the applicant is really eligible, they can open an account for such an applicant. The providers are required to report this to the ATO in the electronic form. This will help the provider to make sure that there is no fraud in the reports submitted by the individual and that his or her intentions are purely to purchase or build a house to live in.

There are no specific restrictions as to who can make a contribution to the FHSA though the contributions will be limited to $10,000 (indexed) per annum. This amount excludes the amount of contribution received from the government and earnings account. There could be a variety of providers like:

Ø       Public-offer superannuation providers

Ø       Friendly societies

Ø       Banks

Ø       Building societies

Ø       Life insurers

Ø       Credit unions etc.

Amongst these, you can expect deposit accounts from banks, building societies and credit unions. For investment linked accounts, you can move to the superannuation providers, life insurers and friendly societies. If you choose to get an FHSA from public offer licensees, then make sure that they provide you such account through a separate trust that has been authorised by the APRA. You cannot expect such accounts to be opened by any other providers because they do not have the kind of prudential regulation required for opening of such an account.

The government taxes these public offer licensees on their FHSA business in the same way as they are being taxed for their superannuation earnings. The tax rate is statutorily fixed at 15%. Similarly the life insurers and friendly societies will also be taxed on their FHSA business. None of them are required to segregate their FHSA business from their other business activities. Such taxation will take into account any deductions, tax offsets, capital gain tax discount and refundable imputation credits as well. The FHSA business of banks, buildings societies and credit unions will be taxed at 15% like any other retirement savings account. Though they also do not need to segregate their FHSA activities from the other business, they will not be allowed to benefit from tax offsets or capital gains tax discount.

All account providers are statutorily required to report annually to the ATO on the amount of contributions made to each account without fail. The onus of providing this housing benefit to the right person lies on the providers as well and they need to take ample steps to ensure there is no fraud taking place at any level.

Outline of the First Home Saver Accounts

As per the highlights of FHSA, the government is geared up to contribute a part of the expenses the individual meets on establishing such first home in Australia. The earlier upfront contribution of $1,000 has been removed now and instead an overall account balance cap of $75,000 has been introduced under the program. The program is designed in a manner so that you are able to acquire a house much earlier than what you had estimated far before.

Tax Treatment with a Difference

The major incentives provided by the government to the young Australians under this program includes taxation at 15% rate on any interest that accrues in the accounts and also absolutely tax charged on the withdrawals made from such account to purchase a first home to live in. Also the entire FHSA balance will be exempt from income and assets test. Finally, the contributions for the cause of First House Saver Accounts will not be taxed in any way provided all such contributions are being made to a specific account. In these ways, the FHSA qualifies for a different taxation policy and helps the individual to reduce his or her tax burden to a large extent.

Limitations of FHSA

Though FHSA shows a way for young individuals to start living in their first own home, the stress on these individuals is way much higher than ever before. This is because the average prices of such housing properties have gone up many more times and today even the rentals are becoming quite hard to manage for the average median household. Since the withdrawals from such account are limited to the purchase of first house, it is really of use to only those people who actually have enough money to buy a new house. This program does not address the problems of shortage of supply of affordable housing in Australia today. Also it only excludes those people who have earlier built or purchased a house for living in it, not those who did such a deal for investment purposes. Similarly the 15% tax rate cut is beneficial only for the high income earners and the common man has got nothing to benefit from it.

Does FHSA have an edge over regular savings account?

As compared to the regular saving accounts, the FHSA can provide you with much more benefits like a co-contribution of 17% on savings of up to $5,000 p.a. and low tax on earnings at just 15%. There are no specific disadvantages of FHSA as compared to regular savings account apart from the difficulties faced by the government, employers and financial services that need to break down the contributions to such account and face compliance costs in this regard. Also the account providers need to monitor the pre-tax and post-tax contributions in case of an FHSA account.

1. If you are going to buy your first home in Australia.
2. If you need money to add to your superannuation program.
3. If you need to withdraw as a lump sum (at age 60 or above).

The first home saver bank account allows you to use it in the same way as your normal bank account. You can deposit money into your account at any time. But there are some limitations with regard to the way you make your withdrawals. All withdrawals made for buying the first house is completely exempt of tax. Also there is a lower tax rate of only 15% charged on all interest accruing in such account.

There are many different benefits of using the first home saver bank account. Some of them include:

• The government contributes a part of your savings to buy your first ever home in the country of Australia.
• All the money you put into your account, all the contributions you get into such account from the government plus the money you withdraw from such account for that first house of yours – none of them are taxed at all.
• All your earnings from such first home saver account are taxed at a very low rate of only 15%.
• If you plan to not buy a house at a later stage, you always have an option of either moving all you’re saving to your super or to withdraw the entire amount as a lump sum at the age of 60 or above.

Make sure that you use the First Home Saver Account policy only if you can wait for four financial years before you buy that first house of yours. Also you cannot make use of such savings for buying a house that you are not going to live in. you cannot in other words use the FHSA money to buy a house for investment purposes. Make good use of this contribution money for setting up your own house early on. In addition, you can avail the First Home Owner Grant at the same time as when you apply for FHSA program.

If you are still wondering as to how the FHSA can help you with regard to home deposit, you need to know that the government puts in the money along with you into your own account. In other words, when you put in 1 dollar into your account, the government puts in 17 cents, up to a maximum of $5,000 from your end. So if you happen to put in $5,000 in to your account, the government will contribute $850 in return. The government thus boosts your savings with its own contributions and charges a very low rate of income tax on all your investments into this account.

The Savior Program:

The major intention of providing the FHSA program for the individuals was to help Australians to save for their first home and provide ample contributions as well as support from the part of the government. This is a simple and quite a tax effective program aimed to help individuals to set up their first home without much difficulties. The program requires the individual to qualify on following grounds to be able to enroll in it:

Ø       The individual needs to fall within the age criteria of 18 to 65.

Ø       This purchase of a house is the first one they plan to live in.

Ø       This is the first time they are availing this facility.

Ø       They should be able to provide their tax file number to the authorities concerned.

The government charges a penalty to those people who open an FHSA account without proper qualifications.

Savings for the first home:

Allowing the first time home buyers to unlock higher returns, the FHSA has been improved over time to help members with refined equity, improved accessibility and reduced administrative costs as well. The program allows providing a low tax environment for such savings account and savings of up to $5,000 per year (indexed) is eligible for contribution from government as well.

The way with term deposits:

There is a four years savings horizon fixed by the First Home Saver Accounts program. As per this, the individual needs to make a minimum contribution of $1,000 over the course of at least four financial years. Only then can such an individual qualify to make withdrawals without tax burden. Also if such individual is jointly purchasing a property and if the other person also is availing FHSA, then only one of them needs to actually meet this term deposit qualification. Contributions to such account can be made by the individual or by another party as well but only from the after-tax income. This other party could be even the account holder’s employer as well. Once the individual submits all relevant details to the ATO and files his tax returns, the government’s contribution will be directly credited to their FHSA account.

The Good part of FHSA:

The main intention of opening up an FHSA for an individual is to help them manage their cash funds better. This program that allows for better incentives will allow the individual to claim up to 15%-30% of contribution from the government on his savings in this account. Also such contribution will depend upon the marginal income tax rate applicable on the income of the account holder. Such contribution is available on up to $5,000 post tax contributions by the individual into such FHSA each financial year.

The FHSA program thus offers you a better way to save a deposit for your first home. The aspiring first home buyers can now benefit largely from such account regardless of their marginal income tax rate since such contributions and friendly tax policies inspire individuals to go for their first huge investment for their lifetime.

The Uncertainty Remains:

The worst part of any new programs implemented by the government is the associated risk with changes in its rules. This program that was a result of the 2007 federal elections commitment received around 150 submissions from individuals, businesses and organizations as well. In line with such submissions, the regulations have been changed to make the program simpler and easily accessible for others. However more consultations are still in place and this means that the risk still exists over further changes in the policy. This uncertainty can be at times difficult for the account holders since their future hangs in mayhem.

Tax Position perplexities:

It is true the FHSA program has helped to simplify the tax burden for the first time home buyers. Yet one needs to be an Australian resident and possess a tax file number (TFN) in order to avail such facility. Also the arrangements for taxing account providers will vary depending upon the type of provider.

The Ups and Downs of FHSA rules:

Estimates show that a large population of Australians is still homeless and this program is an effort to curb this problem. Yet the rules of the program do not make it clear whether it will actually serve that purpose. This is because the program is beneficial for mainly those who are able to save well. As the contributions by the government is directly linked to how much the account holder is able to save over the financial years to come, this program will benefit more for the people who are able to save more. This means that the program will indirectly benefit the top income level more than the lower income people.

The implications of  Henry tax review:

Ken Henry tax review looks at the future taxation system in Australia and recommends several tax effective savings accounts systems. The review focuses mainly on household income and puts light on how superannuation, investment property, salaries, bank deposits, shares etc. are taxed quite differently. This new tax review has the potential to make a meaningful difference in the life of everyone in the country.

With regard to housing affordability, the Henry tax review recommends to provide First Home Saver Accounts as a choice of fund. In other words, the review recommends providing the FHSA as a valid alternative to the Superannuation Choice of Funds. Once the FHSA has been closed, the account holder can simply resume superannuation contributions for retirement purposes. What this will do is to simplify the taxation procedure since the taxation used for superannuation fund and FHSA is similar. Also these measures can help overcome various problems associated with home ownership and retirement savings like reduction in future age pension outlays etc.

When to go for FHSA:

If you are saving up all your money to buy a house for you to live in at Australia for the first time and if you are able to save at least $1,000 every year for four different financial years, then you can avail the FHSA program. For this you need to be aged either 18 years or above and yet not above 65. In addition you should also be able to provide your tax file number as well. Make sure that when you apply for FHSA, you have never availed of this facility before and that you do not have another property in Australia that you have purchased or built for the purpose of housing. If you are going to make this house along with savings of others, then you need to separately open up your own FHSA.

First Home Owners Grant:

The first home owners grant is a completely different scheme from the first home saver account program. The conditions that exist for each of these programs are completely different and hence you need to apply for each of them separately. Those who are eligible can qualify for as much as a $7,000 first home owner’s grant in addition to availing the FHSA program benefits.

FHSA helps first home buyer save a deposit

The government will contribute around 17% of the first $5,000 contributed annually to the account. The overall account balance cap is fixed at $75,000. This program helps you to save a deposit and the highlights of the FHSA with regard to your deposit savings are:

Ø       You can deposit as much money as you like into this account.

Ø       You can only deposit or save your after-tax money.

Ø       You are required to save at the least $1,000 per financial year and for four financial years minimum. These four financial years need not be in a row.

Ø       You can keep on saving in your FHSA account till the amount reaches the account balance cap. Once the account reaches the maximum cap amount, you can only keep on adding government contributions and interest credited to such savings.

Ø       You can choose to use this account either till you buy your first home or till you reach the age of 65.

This program is intended to help first time home buyers to succeed in their efforts. The recent consultations have helped to deliver an enhanced FHSA that makes the whole program fairer and simpler as well.