First Home Saver Accounts - Consultation Paper
© Commonwealth of Australia 2008
ISBN 0 642 74436 X
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The Government is seeking comments on the implementation of First Home Saver Accounts.
In the 2007 federal election campaign, the Government announced that it would establish First Home Saver Accounts to help aspiring first homebuyers to purchase a first home.
This paper outlines the main features of First Home Saver Accounts and how they would operate.
The Government is seeking submissions and comments by 7 March 2008 to assist in settling the final administrative and legislative design features of First Home Saver Accounts.
Comments can be forwarded to the following address:
Personal and Retirement Income Division
PARKES ACT 2600
Email address: firstname.lastname@example.org
Further copies of this paper can be obtained by writing to the address above or from the website, http://www.homesaver.treasury.gov.au.
All submissions received will be treated as public documents unless the author of the submission clearly indicates the contrary by marking all or part of the submission as ‘confidential’ prior to the submission being lodged. Public submissions may be published in full on the website, including any personal information of authors and/or other third parties contained in the submission. If your submission contains the personal information of any third party individuals, please indicate on the cover of your submission if they have not consented to the publication of their information.
A request made under the Freedom of Information Act 1982 for access to a submission marked confidential will be determined in accordance with that Act.
This chapter outlines the background and main design features of First Home Saver Accounts.
The financial pressures faced by first homebuyers have increased, with the price of an average home rising more quickly than the average annual wage, and first homebuyers spending a greater proportion of their total income on mortgage repayments than at the beginning of the decade. Housing affordability as measured by the Housing Industry Association is at record lows, with mortgage repayments for the typical first homebuyer now consuming 31.7 per cent of their gross income, compared to 17.9 per cent in 1996.
Home ownership is important to the wellbeing of Australians and saving a deposit is one of the greatest obstacles to buying a first home in Australia. In recognition of this, in the 2007 federal election campaign, the Government announced that it would introduce First Home Saver Accounts. The accounts are the first of their kind in Australia and will provide a simple, tax effective way for Australians to save a deposit for the purchase of their first home through a combination of lower taxes and a Government contribution.
The First Home Saver Account initiative will complement the Government’s policies to increase the supply of affordable housing which include the Housing Affordability Fund, the National Rental Affordability Scheme and the release of surplus Commonwealth land.
First Home Saver Accounts will reflect the arrangements for superannuation — allowing first homebuyers to access similar benefits on their first home savings and unlock higher returns.
Since the Government announcement, further consideration has been given to the key features of the accounts and the details have been considerably strengthened and refined to improve equity, reduce administrative and compliance costs and improve accessibility. The main features of the accounts are:
- individuals will need to satisfy eligibility criteria, based around the qualifying criteria for the First Home Owner Grant, in order to establish a First Home Saver Account. These criteria include: being an Australian resident for income taxation purposes; being aged 18 and over and under 65 years; never having previously owned a home in which they have lived; and making an initial individual contribution of $1,000;
- the First Home Owner Grant will remain in place;
- individual contributions of at least $1,000 in each of four or more years must be made before benefits can be withdrawn;
- there will be an annual post-tax contributions cap of $10,000 (indexed);
- the election policy included an overall individual contributions cap. The Government is inviting comment on the possibility of a $50,000 (indexed) overall cap on individual contributions;
- the accounts will provide a low tax savings environment similar to that which applies to superannuation:
- savings of up to $5,000 per year (indexed) will be eligible for a Government contribution paid directly into the account;
- the Government contribution will vary from 15 to 30 per cent of contributions depending on the account holder’s marginal income tax rate;
- there will be a minimum Government contribution of 15 per cent to provide benefits to low- and middle-income earners. Thus, individuals with incomes of up to $80,000 can receive a Government contribution of up to $750;
- account earnings will be taxed at a statutory tax rate of 15 per cent rather than the individual’s marginal income tax rate and withdrawals will be tax free where they are used to purchase a first home or contributed to superannuation;
- the Government contribution corresponding with the different marginal income tax rates is outlined in the table below;
Individual’s marginal income tax rate
Government contribution on post-tax contributions *
Maximum benefit based on $5,000 of individual contributions
* The proposed Government contribution is available on up to $5,000 of post-tax contributions.
** Based on 2008-09 tax scales.
- by transferring their account balance into superannuation, individuals may apply to their superannuation fund to access their funds using the superannuation early release provisions of severe financial hardship, compassionate grounds or terminal illness;
- trustees of registrable superannuation entities (RSEs) which hold a public-offer or extended public-offer licence, life insurers, banks, building societies and credit unions will be able to offer the accounts; and
- account balances will be exempt from the social security assets test.
The key changes from the election announcement:
- improve equity by extending Government benefits to low- and middle-income earners;
- provide clearer incentives to save by delivering benefits through a Government contribution paid directly into individual accounts;
- streamline the contribution arrangements through an annual post-tax contributions cap; and
- improve accessibility by widening the range of account providers.
First Home Saver Accounts are designed to provide a tax-preferred vehicle to encourage people to save money for a first home.
Like superannuation, First Home Saver Accounts could involve delivery through a salary sacrifice mechanism, allowing people to make deposits at a concessional tax rate.
Notwithstanding the benefits of this system, the government, employers and financial services sector potentially face a series of compliance costs in implementing salary sacrifice arrangements. The requirements would include:
- employers having to separately identify the breakdown of superannuation contributions and First Home Saver Account contributions for each employee and report this information to the superannuation fund; and
- account providers needing to monitor pre-tax and post-tax contributions.
Given the additional administrative processes involved, it would be difficult to work through these issues and meet an implementation date of the second half of 2008, but this option could be developed following the commencement of the proposed arrangements.
Salary sacrifice arrangements may be implemented as an additional delivery mechanism at a later stage. The Government invites comment on this possibility.
The Government intends to introduce a new Act to deal with the establishment, operation and prudential regulation (where this is not covered in other prudential legislation) of the accounts and disclosure requirements in relation to the accounts. The Act will also deal with the payment of the Government contribution.
To implement the taxation treatment, amendments to the taxation laws, in particular, the Income Tax Assessment Acts (primarily the Income Tax Assessment Act 1997, the Income Tax Rates Act 1986 and the Taxation Administration Act 1953) will be required.
Similarly, amendments will be required to other legislation to facilitate the creation of the accounts, including the social security law (to address any necessary social security changes).
The Australian Prudential Regulation Authority (APRA) will be responsible for the prudential regulation of the accounts and their providers. The Commissioner of Taxation will be responsible for administering the Government contribution and tax related matters. The Australian Securities and Investments Commission (ASIC) will be responsible for financial services licensing and disclosure in relation to the accounts and their providers.
The Government has committed $950 million over the next four years to implement First Home Saver Accounts, of which $850 million is the Government contribution and $100 million relates to the concessional tax treatment of earnings. Further detail on the cost is at Appendix A.Next: 2. Account Providers
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