Introduction to First Home Saver Account (FHSA)

The housing affordability crisis is a major issue facing young Australians who are struggling to get purchase their first home. The following statistics are telling of the issue at hand:

- The average home costs 7 times the average salary compared to 4 times a decade ago.

- First home buyers are now spending around 30% of their income on mortage repayments compared to 18% a decade ago.

During the elections the ALP led by Kevin Rudd proposed a number of refreshing solutions to the problem after consultations with the various industry groups. The single biggest credit that the ALP is deserving of is for actually raising the housing affordability issue as a national agenda of which the Howard government has been ignoring.

On February 4 the federal government approved the first home saver account. The account will help first home buyers enter the market by helping to boost their savings through lower tax, in effect similar to tax concessions that apply to suparannuation accounts.

The announcement of the approval also represent an improvement to the proposals made during the election.

The first home saver accounts will have the following concessions:

The first $5000 of pre tax income going into the savings account will be taxed at 15%. The investment earnings in the savings account will be taxed at 15% or less.

The scheme will allow up to 10% of the pre tax income to be deposited into the account.

There will be post tax contribution cap of $10,000p.a. (indexed).

The cap on the total savings that can be placed in the account will be $85,000.

In order to discourage the use of the accounts by the wealthy the government will limit the withdrawal of the savings in the first four years.

More details are included in the following pages.