First Home Saver Accounts - Some Details Released

The Government has recently released a Consultation Paper on First Home Saver Accounts, which hopefully will be shortened to “Saver Accounts”. 

The Consultation Paper provides the Government’s preferred benefit design, which is:

• Saver Accounts can be offered by banks, building societies and credit unions, life companies, and APRA licensed public trustees
• SMSFs (and other super funds which are not public offer funds) will not be permitted to offer Saver Accounts
• Saver Accounts can be structured as simple deposit accounts (for banks, building societies and credit unions), investment insurance contracts (for life companies and friendly societies) or as trust interests (if offered by APRA licensed public trustees)
• If Saver Accounts are offered by APRA licensed public trustees, the accounts will not be part of the super fund but part of a separate trust
• Saver Accounts will be tax-paid products – rather like investment insurance policies
• Saver Accounts will have both tax breaks and Government Co-Contributions
• To open a Saver Account the account holder must be 18 years, under 65, be an Australian tax resident and satisfy criteria which will be based upon eligibility for the First Home Owners Grant
• An annual contribution limit of $10,000 will apply – to both contributions made by the account holder and by third parties
• A lifetime limit of $50,000 of contributions will apply
• An individual can have only one Saver Account open at any time (an exception will apply for the purposes of facilitating transfers of balances between providers)
• The account balance can only be accessed when the account holder has made 4 annual contributions of $1,000 or more – they need not be made in consecutive years
• The account balance can be used to purchase a house (either as a deposit, on settlement, or to pay acquisition costs) or a vacant block of land (in this case building must commence within 6 months)
• The Government co-contribution will apply to the first $5,000 of eligible contributions made in each year – the co-contribution will be calculated at the rate of 15%, 25% or 30% (depending on the account-holder’s marginal tax rate)
• There can be no partial withdrawals from the account – it will operate on a “one out all out” principle
• A person who currently or previously owned a dwelling and occupied the dwelling as their residence will be ineligible to open a Saver Account
• An account-holder can decide not to use the account balance for home purchasing – in which case the balance must be transferred to a super fund
• An account will automatically close on the account holder’s death or attaining age 65 – the balance will then be transferred to a super fund and credited as a contribution to the member’s account – and if the holder has died, paid as a death benefit
• If the balance is transferred to a super fund it will be counted as non-concessional contribution.