The Government has confirmed it will introduce legislation effective 1 October 2008, allowing the establishment of concessionally taxed First Home Saver Accounts (FHSAs).
The key features, based on the consultation paper released earlier this year and in the 2008 Federal Budget, are:
• You must be between 18-65 years of age and never have previously bought or built a home in which to live.
• You must make personal after-tax contributions of at least $1,000 in each of four separate financial years. However, it will not be mandatory to establish a FHSA with a single minimum contribution of $1,000.
• A Government contribution at a flat rate of 17% on the first $5,000 (indexed) of personal contributions, up to $850, will apply each year. The Government contribution is made in arrears after the ATO receives tax reports from FHSA providers and the income tax returns of FHSA investors.
• Contributions cannot be made once the account balance reaches $75,000 (indexed).
• Earnings on the account will be concessionally taxed at 15% in the hands of the FHSA provider.
• Withdrawals will be tax free when used to purchase or build a first home in which to live, but may have to be transferred to your superannuation account in other circumstances.
• You can only operate one account at a time and, in general, once closed cannot open another FHSA.
• FHSAs may be offered by Approved Deposit Taking Institutions which include banks, building societies, and credit unions as well as registered trustees of public offer superannuation funds.
The table below compares the end benefits of investing $10,000 pa in a FHSA and an internet savings account.
*Assumptions: Annual contributions of $10,000. The announced FHSA attracts a Government contribution of 17% of the first $5,000 contributed per year. Interest rate is 7.05% in all products. Rates are assumed to remain constant over the investment period. All figures are after income tax (at 15% for FHSA and 31.5% for the internet account).
A key consideration is whether it may be financially worthwhile investing in a FHSA, as the results may not be sufficiently compelling to justify the reduced flexibility associated with locking into a four year time frame.
For further information please contact me @ IPS Home Loans on (02) 4227 5511.
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