First Home Saver Account benefits abolished
The benefits in the First Home Saver Account were abolished in this week’s budget, removing an excellent first home savings vehicle, even for the 46,000 people who already have one.
The First Home Saver Account (FHSA) was one of the financial market’s best-kept secrets, and an excellent product for a future first home buyer. When I called the Australian Taxation Office (ATO) last week to check some details, the staff member did not even know where to find someone to help with the questions. Eventually, a special number was provided to talk to the FHSA expert, and he admitted he took only one or two calls a week. Unfortunately, the great benefits of the account were abolished in this week’s budget, apparently due to lack of use.
Why bother writing about it now?
The FHSA will not actually be abolished until 1 July 2015, but it is no longer worth opening one because the benefits have gone. There has even been a substantial change in the terms for any of the 46,000 accounts already opened, so it’s important for anyone with this account to reconsider whether it’s worth having.
The details of the changes are on the ATO’s website here.
Briefly, the FHSA scheme was announced in 2008, and the Rudd Government saw it as a major initiative to assist people to buy their first house. They expected to pay $6.5 billion in government assistance to 750,000 Australians. The latest APRA statistics for December 2013 show 46,000 accounts in total, with only 800 opened in the previous six months, for a balance of $520 million.
The great features included that the government would make a contribution worth 17% of the first $6,000 deposited each year, giving a tax-free gift of up to $1,020 a year. Interest on the account was taxed at only 15%, and balances could build up to $90,000. The 17% was in addition to the interest rate paid by the product provider. The full annual government contribution was paid even if the account was opened on 30 June.
The drawbacks included that the money could only be used to pay the mortgage on a first home after the end of a ‘four year’ period (which actually was really a ‘two year’ period, but that’s another story). If not used for a loan, it could be added to a super account.
What is happening now?
Any new accounts opened from 7:30 pm on 13 May 2014 will not receive any concessions or the government contribution. The government contribution will cease from 1 July 2014 for existing accounts. Tax and social security concessions will cease from 1 July 2015, although existing accounts will receive all these concessions for the 2013-14 and 2014-15 years.
Restrictions on withdrawals will be removed from 1 July 2015 when the FHSA will be abolished and these accounts will be treated like any other account.
In summary, the thousands of account holders putting $6,000 a year into this account and receiving $1,020 from the government towards their first home have lost a great savings vehicle.
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