First Home Saver Accounts Vs Regular Savings Account
As per the new First Home Saver Accounts (FHSA) program, each young individual in Australia who is trying to build his or her first home will get ample assistance from the government in way of reduced tax liabilities and contributions from the government as well.
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.