SMSF and First Home Super Saver Scheme: What Accountants and Advisers Must Know

Advising on the First Home Super Saver (FHSS) scheme takes more than technical knowledge. It also means helping clients understand what the rules surrounding FHSS allows and its limitations.

This article gives you structured, professional support. It covers key FHSS regulations, explains common client misconceptions, and shows how to respond with clarity.

You’ll find practical case studies, compliance insights, and suggestions on how you can provide assistance to your clients. Whether you are reviewing contribution strategies or guiding someone through the FHSS steps or procedures, this article helps you give accurate, confident advice that builds trust.

What Is the First Home Super Saver Scheme?

The FHSS scheme, introduced on 1 July 2017, allows first-time home buyers to voluntarily contribute extra funds to their superannuation account and later withdraw those contributions, plus deemed earnings, to help purchase their first home.

The purpose of the scheme is to use the concessional tax treatment of superannuation to help individuals, particularly younger or lower-income earners, accelerate their savings for a home deposit.

Eligibility Criteria for FHSS

Clients must meet all the following criteria to be eligible for FHSS:

• Age: Must be 18 years or older at the time of applying for a release.
• Property Ownership: Must have never owned real property in Australia, including:
  • Investment properties
  • Vacant land
  • Commercial property
  • Leases of land
  • Company title interests
• Hardship Exception: May still be eligible if previously owned property but lost it due to financial hardship.
• Residency Requirement: Must intend to live in the property for at least 6 months within the first 12 months of ownership.
• Australian Property: Must be purchasing residential property in Australia (not overseas).
• Contributions: Must have made eligible voluntary contributions to super after 1 July 2017.

Key Features and Tax Treatment of FHSS

The FHSS has several critical features and specific tax rules that advisers must understand and explain clearly to clients:

Contribution and Withdrawal Limits

• Clients may apply to release up to $15,000 per financial year of eligible contributions.
• The lifetime limit is $50,000 per person (raised from $30,000 pre-2022), see First home super saver scheme | Australian Taxation Office
• Couples can combine benefits to withdraw up to $100,000.

Eligible Contributions

• Voluntary concessional contributions (e.g. salary sacrifice or deductible personal contributions)
• Voluntary non-concessional contributions (after-tax personal contributions)
• Certain KiwiSaver or foreign fund transfers (if treated as voluntary)

Ineligible Contributions

• Employer SG contributions
• Spouse contributions
• Government co-contributions
• Rollovers from other funds (unless structured as voluntary)
• Excess contributions

Withdrawal Components

• 100% of non-concessional contributions
• 85% of concessional contributions
• Deemed earnings, calculated by the ATO’s Shortfall Interest Charge (SIC) rate (currently fluctuates quarterly)

Tax Treatment

• Withdrawn amounts are added to the individual’s assessable income in the year of release.
• A 30% tax offset applies to these assessable amounts (reducing effective tax).
• Withdrawals do not affect Centrelink income tests or benefits.

Compliance Considerations for Accountants and Advisers

FHSS is subject to strict ATO administration and requires advisers to follow specific steps and documentation rules:

• Applying too late: Clients must receive an FHSS determination from the ATO before signing any property contract.
• Ineligible contribution types: Ensure only eligible voluntary contributions are included. See our full EOFY checklist.
• Incorrect expectations: Many clients mistakenly believe they can withdraw employer contributions or the full balance of their super.
• Missed timing: Funds must be used to buy or build within 12 months of withdrawal (extension up to 12 months possible).
• Failure to return unused funds: If a purchase falls through, the withdrawn amount must be returned to the super fund.

Withdrawal Order and Reporting

• Contributions are withdrawn on a first-in, first-out basis. Learn how contribution timing can affect actuarial requirements.
• Funds are released by the ATO, not the super fund.
• Clients can only use the scheme once in their lifetime.

How Advisers can Support Clients Using FHSS

1. Identify Contributions Early: Check if your client has made voluntary contributions since 1 July 2017. Even if not originally for FHSS.
2. Educate on Timelines and Triggers: Warn clients that ATO processing takes up to 20 business days in most cases. This is a common pitfall that can jeopardize property settlement.
3. Use the Scheme with Other Benefits: FHSS is independent of the First Home Owner Grant (FHOG) and state-based stamp duty concessions. Clients can potentially benefit from all.
4. Discuss Investment Strategy: Some clients choose high-growth options for voluntary super savings. Help them weigh risk vs. return given short timeframes.
5. Review Super Fund Rules: Not all SMSFs or APRA-regulated funds may be set up to easily track FHSS contributions. Check administration capabilities.

Common Client Misunderstandings and How to Navigate Them Professionally

Even well-informed clients can misinterpret the rules around superannuation and the First Home Super Saver (FHSS) scheme. Here are a few common misunderstandings you might encounter and how to guide the conversation with clarity and care.

• “I can use my whole super to buy a house.”
  It’s easy to see where this comes from, but the reality is more limited. Only voluntary contributions (and the earnings on them) can be accessed under the FHSS. Compulsory employer contributions and preserved benefits can’t be touched.
• “I don’t need approval before signing the contract.”
  This one trips up a lot of clients. The ATO needs to issue a formal FHSS determination before they sign anything. If not, they won’t be eligible to access their funds—even if everything else is in order.
• “If I change my mind, I can just use the scheme next time.”
  Unfortunately, the FHSS is a one-shot deal. If the funds are released but not used correctly, for example, the purchase falls through, that’s it. They can’t apply again down the track.
• “There’s no tax on the money I withdraw.”
  Not quite. While the FHSS is tax-effective, it’s not tax-free. Concessional contributions and earnings are included in assessable income, but clients do receive a 30% tax offset to reduce the impact.

Adviser Checklist for FHSS Client Discussions

Case Scenario 1: Jennifer – First-Time Buyer with Super Contributions

Jennifer is 25 years old and currently renting an apartment in Melbourne. She has never owned property in Australia or overseas. Two years ago, she began salary sacrificing $300 per fortnight into her superannuation with the goal of eventually buying her first home.

Jennifer wants to access her voluntary contributions under the FHSS scheme to put toward a deposit. Since she is over 18, has never owned property, and has made eligible voluntary super contributions over multiple financial years, she qualifies for the FHSS scheme. She intends to buy a home in Australia and live in it for at least six months within the first year of ownership.

Outcome: Jennifer is eligible and can apply for a FHSS release.

Case Scenario 2: Phoebe – Qualified Through Financial Hardship

Phoebe (40), from Perth, had previously owned a home jointly with her ex-partner but lost it due to separation and financial stress. She had been renting and rebuilding her life for several years.

Use of FHSSS: Even though she had previously owned a home, Phoebe applied under the financial hardship provisions of the FHSSS, which allow individuals who experienced serious hardship (such as divorce, family violence, or bankruptcy) to still qualify.

Outcome: Phoebe contributed $10,000 per year for three years and withdrew around $33,000 (including interest). She used this money to put a deposit on a small townhouse in Perth, starting a fresh chapter.

Case Scenario 3: Tom – Investment Property Owner

Tom is 32 years old and works as a consultant in Sydney. He owns an investment property in regional New South Wales that he purchased five years ago but has never lived in. He now wants to buy a home in Sydney to live in and is exploring the FHSS scheme as an option.

Despite never having lived in his investment property, Tom is not eligible for the FHSS scheme. The rules clearly state that individuals who have ever owned any property in Australia, including investment properties, are not eligible, unless they qualify for the financial hardship provision, which does not apply in Tom’s case.

Outcome: Tom is ineligible for the FHSS scheme.

Helping You Guide Clients with Confidence

We understand that the FHSS scheme may seem complex for your clients to comprehend. While they may be aware of the tax benefits, many will need you to guide them through the steps and procedures required to achieve their property purchasing goals.

SMSF Engine is here to support you with expert guidance, technical insights, and practical tools, so you can confidently assist your clients and ensure compliance every step of the way.

Contact us to discuss how we can help you navigate FHSS strategies and provide your clients with clear, informed advice.