Australian Government, A Plan to Simplify Superannuation

First Home Saver Accounts - Consultation Paper

3. Opening and making contributions into an account

This chapter describes the process for opening a First Home Saver Account and outlines the contribution rules. The rules for withdrawals are discussed in Chapter 4.

Key Points

  • To open a First Home Saver Account, an applicant must be aged 18 and over and under 65 years of age, be an Australian resident for taxation purposes, never have previously purchased or built a first home in Australia to live in, and make an initial contribution into the account of at least $1,000.
  • Individual contributions to a First Home Saver Account will be limited to $10,000 (indexed) per annum. Once a full withdrawal from the account is made, the account will be required to be closed. There will be no partial withdrawals.
  • All contributions will be treated as post-tax amounts.
  • There will be a Government contribution on up to $5,000 (indexed) of individual contributions annually, which will be paid directly into the account.

3.1 Opening an account

3.1.1 Eligibility criteria

A uniform set of criteria will be used to determine an individual’s eligibility to open a First Home Saver Account. These criteria will be based around those used by the States and Territories to assess eligibility for the First Home Owner Grant (FHOG). Unlike the FHOG, eligibility to open an account will be determined on an individual basis and will not be affected by the eligibility of an individual’s partner. The FHOG arrangements will remain in place.

An applicant must be aged 18 and over and under 65 years and open the account for themselves (where the person is incapacitated, their legal personal representative may open an account for them). They must also be an Australian resident for income taxation purposes.

As the accounts are to be used to assist individuals to save for their first home, the applicant must never have previously purchased or built a first home in Australia to live in (this test is based on the individual and does not take into account whether a current or former partner has previously owned a home).

To ensure the integrity of the $10,000 (indexed) annual contribution limit and to help individuals and the ATO track the accounts, the individual must: provide their tax file number; meet standard proof-of-identity requirements; and confirm that they do not already have, or have previously had, a First Home Saver Account.

A minimum $1,000 upfront contribution will be required. This will reduce administrative inefficiencies for account providers.

The ATO will undertake compliance work to ensure that individuals who open an account are eligible and that only one account is opened per individual. Penalties will apply for breaching the eligibility requirements, including criminal penalties if applicable.

TFN quotation arrangements

To be eligible to open an account, an individual will be required to quote their TFN to the account provider. Individuals who choose not to quote their TFN will not be eligible to open an account.

Other TFN requirements, including the collection, storage and use of TFN information, will be modelled on the current superannuation arrangements.

These TFN quotation arrangements will be critical in ensuring the integrity of the annual individual contribution limit and assist in paying the Government contribution. They are consistent with the requirement under superannuation law to quote a TFN in order to make a post-tax contribution and receive the superannuation co-contribution. The requirements will also assist individuals to keep track of their account.

Individuals who transfer their account to another provider

Where an individual has an account and wishes to move to another provider, the individual will be permitted to hold two accounts temporarily, provided that the transfer to the new account is completed within 30 days of opening it.

Where the transfer is completed within 30 days, the previous account provider will be required to close the account when the balance is transferred. Where the transfer is not completed within 30 days, the new account provider will be required to close the account.

3.2 Process for opening an account

3.2.1 Individuals

The application process will be simple, involving the individual applying to an account provider for a First Home Saver Account, by providing information to the provider using a standard application form. The information will be used as proof-of-identity and to confirm the individual’s eligibility to open the account.

If the account provider is satisfied that the individual meets the eligibility criteria, the provider may open an account for the individual and contributions can be accepted.

Penalties will apply where an individual has deliberately opened more than one account.

3.2.2 Account providers

Process of opening an account

The process of opening an account for an individual will be simple for account providers to administer.

Before an account is opened, account providers will be required to disclose certain key information to applicants. These disclosure requirements are dealt with in Chapter 6.

Once this information is provided, the account provider will need to request certain information from the applicant to ensure the applicant is eligible to open an account. The information an account provider must request will include: the individual’s TFN; standard proof-of-identity documents; and a declaration from the individual that they meet the eligibility criteria outlined at 3.1.1. A new standard form will be introduced to facilitate this process.

Once the account provider is satisfied that it has provided all of the necessary information to the applicant and has received all of the required information from the applicant, it may open an account.

Reporting to the ATO when an account is opened

Once an account has been opened, account providers will be required to report information in electronic form to the ATO. This will allow the ATO to undertake compliance work to ensure that individuals who have opened an account are eligible. Anti-money laundering and counter-terrorism financing requirements will also need to be met.

Account providers will be required to provide the ATO with the account holder’s details including their TFN, full name, date of birth and address, as well as certain account details including the account number and the date the account was opened.

Account providers will need to provide this information to the ATO as soon as possible after opening an account, and in any event, within 30 days.

3.3 Contributions

3.3.1 Contribution rules

Who can make a contribution

There will be no restrictions on who can make a contribution into an account. As with other payroll deductions, an employer will be able to remit post-tax contributions on behalf of an employee to an account.

The account provider will request basic identifying information from the contributor to enable excess contributions to be returned (see 3.3.2).

Contribution limit

Contributions to an account will be limited to $10,000 (indexed) per annum (this excludes the Government contribution and account earnings). The election policy included an overall contributions cap. The Government is inviting comment on the possibility of a $50,000 (indexed) overall cap.

The account provider will not be able to accept contributions if the contributions cause a breach of the annual $10,000 (indexed) contribution limit. The $10,000 limit will be maintained at double the $5,000 Government contribution threshold which will be indexed to Average Weekly Ordinary Time Earnings in $500 increments.

Type of contributions

To simplify the operation of the accounts and reduce the overall administrative and compliance burden, all contributions will be post-tax amounts.

Minimum contributions

A minimum $1,000 contribution will be required to open an account.

There will be no requirement for minimum annual contributions. However, amounts may only be withdrawn where contributions of at least $1,000 have been made in each of at least four years. The rules for withdrawals are discussed in Chapter 4.

This will ensure that accounts are used by individuals committed to saving.

Additional contribution rules

Account providers will be free to set contribution limits on their products independently to minimise the administrative costs associated with small account balances.

3.3.2 Account providers accepting contributions

Acceptance of contributions

Where individual contributions are inadvertently received in breach of the limit, the account provider will be required to return the excess to the contributor within 28 days of receipt. The account provider will also be required to notify the account holder. Penalties will apply to the account provider if they fail to do so. There will be no penalty on the individual contributor or account holder.

Account providers will not be able to accept individual contributions once: the balance of an account is withdrawn to buy or build a first home; the account holder reaches age 65; or the balance is contributed to superannuation as the account will be required to be closed. The closure of accounts is discussed in Chapter 4.

Reporting of annual contributions

Account providers will be required to report annually to the ATO on the amount of contributions made to each account.

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