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First Home Savers Account

As part of the Rudd Government's affordable housing package, First Home Saver Accounts were introduced and are now being offered by major financial institutions such as banks, building societies, credit unions, life insurance companies etc. These accounts are specifically designed to offer a tax effective way for Australians to purchase their first home, with the aid of government contributions and low tax rates on interest earned.

What advantages does this offer over your average bank account?

The first home savers account has two major differences from your average bank account. Firstly, the government will contribute 17% on the first $5,000 of savings made each year. So if you deposit $1,000 in a year, the government will deposit an extra $170 into your FHSA (up to a maximum of $850). The contributions will be made after you have lodged your tax return and the account provider has submitted the relevant information to the ATO. The other advantage offered is a low tax rate of only 15% on any interest earned instead of being taxed at your marginal tax rate. Unlike a normal bank account, the tax is payable by the account provider, and when you withdraw the balance of the account, the funds and contributions are tax free.

Am I eligible?

To be eligible for a First Home Savers Account you must meet the following requirements;

• Be over 18 and under 65

• Have a tax file number

• Never have owned a home in Australia as a main residence

• And have never previously had a FHSA

If you become ineligible during the life of the account, the balance will be transferred into your superannuation fund. If

Although there is no minimal amount thayou open an account while you are ineligible you may be liable to penalties.

How do they work and what rules apply?

t you must contribute per year, before you may withdraw the funds you must have made a minimum contribution of $1,000, for at least four years (they do not have to be consecutive). The funds can only be put towards purchasing or building your first home, and you must live in this home for at least 6 months as your main residence starting within 12 months of settlement or when construction is completed.