Explanatory Memorandum(Circulated by the authority of the Treasurer, the Hon J. B. Hockey MP)
Chapter 1 - Cessation of the First Home Saver Accounts Scheme
Outline of chapter
1.1 Schedule 1 to this Bill repeals the legislation providing for the First Home Saver Accounts (FHSAs) Scheme, including the related tax concessions.
Context of amendments
First Home Saver Accounts Scheme
1.2 In 2008, the former Government established FHSAs to assist individuals in saving for their first home. The creation of FHSAs involved a package of legislation - the First Home Saver Accounts Act 2008 (the FHSA Act), the First Home Saver Accounts (Consequential Amendments) Act 2008, the Income Tax (First Home Saver Accounts Misuse Tax) Act 2008, First Home Saver Accounts (Further Provisions) Amendment Act 2008 and the First Home Saver Account Providers Supervisory Levy Imposition Act 2008.
1.3 Under the rules principally set out in the FHSA Act, individuals between 18 and 65 who had not previously owned a home in Australia were entitled to open a FHSA, which could then receive contributions from the individual or others up to a cap (now $90,000) (see sections 27 to 30 of the FHSA Act).
1.4 Amounts can only be withdrawn from a FHSA where specific requirements are satisfied. In most cases, the FHSA holder must:
- withdraw the amount in order to make a contribution to the purchase of a first home (including making payments towards a mortgage on the home); and
- have, in at least four financial years, either contributed at least $1,000 to the FHSA or owned a first home.
(See sections 31 to 32 and 32A of the FHSA Act.)
1.5 However, alternative eligibility criteria for withdrawals exist. In particular, a FHSA holder may choose at any time to transfer the balance of a FHSA to superannuation (section 34 of the FHSA Act).
1.6 Commonwealth assistance to saving via a FHSA takes the form of both Government contributions (17 per cent of the first $6,000 contributed in a year) and tax concessions (Part 4 of the FHSA Act and Division 345 of the Income Tax Assessment Act 1997 (ITAA 1997)).
1.7 Take up of FHSAs has been very low, with only around 47,000 in existence as of September 2014.
Tax treatment of First Home Saver Accounts
1.8 FHSAs receive similar tax concessions to superannuation accounts. Broadly:
- earnings from FHSAs are taxed in the hands of the FHSA provider, not the individual, and at a flat rate of 15 per cent (Division 345 of the ITAA 1997 and sections 23 and 30 of the Income Tax Rates Act 1986);
- contributions to FHSAs, including Government contributions, are not further taxed (section 345-50 of the ITAA 1997); and
- withdrawals from FHSAs are generally not taxed (Division 345 of the ITAA 1997).
1.9 If an individual obtains money from a FHSA to purchase a home and the individual:
- was not eligible to hold the account;
- does not use the money to purchase or build a first home; or
- does not meet the occupancy rules in respect of the first home,
then the individual will be liable to a special tax (FHSA misuse tax) to clawback any tax benefits or Government contributions the individual has received in respect of the withdrawn amount (see section 345-100 of the ITAA 1997). FHSA misuse tax does not apply where amounts are contributed to superannuation.
Regulation of First Home Saver Accounts providers
1.10 The FHSA Act also sets out a regulatory regime for providers of FHSAs and FHSA trusts. The rules that apply depend on the class of provider, being intended to be largely consistent with existing prudential obligations for entities of that type.
1.11 FHSA providers and FHSA trusts that are registrable superannuation entity licensees are subject to a prudential framework that is broadly consistent with that which applies to trustees of public offer superannuation funds.
1.12 FHSA providers that are authorised deposit-taking institutions and life insurers are subject to prudential requirements under the Banking Act 1959 or Life Insurance Act 1995.
1.13 Additional investment management requirements apply to FHSA providers that are registrable superannuation entity licensees or life insurance companies and offer FHSAs as investment-linked life insurance policies.
1.14 On 13 May 2014, the Government announced as part of the 2014-15 Budget that it intended to close the FHSAs Scheme.
1.15 The savings from the measure will be redirected to repair the budget and fund other policy priorities.
Summary of new law
1.16 Schedule 1 to this Bill will repeal the legislation establishing the FHSAs Scheme and providing for the payment of the Government matching contribution - the First Home Saver Accounts Act 2008, the First Home Saver Account Providers Supervisory Levy Imposition Act 2008 and the Income Tax (First Home Saver Accounts Misuse Tax) Act 2008.
1.17 Schedule 1 will also amend the tax law and the social security law to remove tax and social security concessions available to FHSAs.
Comparison of key features of new law and current law
|New law||Current law|
|The FHSAs Scheme is closed.
Accounts that were previously FHSAs will not be subject to any regulatory restrictions on contributions or withdrawals and will receive the same tax and social security treatment as other savings or transaction accounts.
|Eligible taxpayer may open FHSAs with certain financial institutions.
FHSA receive tax and social security benefits and a matching Government contribution is available for contributions up to a certain value in an income year.
However, contributions to FHSA are restricted and the money may only be withdrawn in limited circumstances (generally for the purchase of a first home).
Detailed explanation of new law
Repeal of the First Home Saver Accounts Acts
1.18 Schedule 1 repeals the FHSA Act. [Schedule 1, item 2, the whole of the First Home Saver Accounts Act 2008]
1.19 The FHSA Act establishes FHSAs, provides rules for their operation, establishes the legislative framework for the payment of matching Government contributions and provides for prudential regulation of FHSA providers, other than FHSA providers that are ADIs and life insurers (which are prudentially regulated under other legislation).
1.20 The repeal of this Act will remove FHSAs and the surrounding regulatory framework from the law. Accounts that are currently FHSAs will cease to be FHSAs. This means that they will no longer be eligible for the benefits this provided, including Government FHSA contributions. However, they will also no longer be subject to the restrictions on contributions and withdrawals, including the taxes and penalties that could apply to individuals and providers where amounts were withdrawn from a FHSA.
Repeal of related Acts
1.21 Schedule 1 also repeals:
- the First Home Saver Account Providers Supervisory Levy Imposition Act 2008; and
- the Income Tax (First Home Saver Accounts Misuse Tax) Act 2008.
[Schedule 1, items 1 and 3, the whole of the First Home Saver Account Providers Supervisory Levy Imposition Act 2008 and the Income Tax (First Home Saver Accounts Misuse Tax) Act 2008]
1.22 These two Acts impose taxes related to the operation of the FHSAs Scheme - the First Home Saver Account Providers Supervisory Levy Imposition Act 2008 imposes a tax on FHSA providers to meet the regulatory costs of the Australian Prudential Regulation Authority, while the Income Tax (First Home Saver Accounts Misuse Tax) Act 2008 imposes the penalty tax on individuals that breach the requirements around the use of FHSAs.
1.23 Following the repeal of the FHSA Act, these taxes will become redundant and they will therefore be repealed.
Amendments to the tax law
1.24 Schedule 1 also amends the tax law to remove tax concessions relevant only to FHSAs.
1.25 Prior to these amendments, Division 345 of the ITAA 1997 provided that:
- individual and Government FHSA contributions were exempt from income tax;
- individuals were not taxed on the earnings of their FHSAs - instead, the earnings were treated as income of the account provider and taxed at a fixed rate of 15 per cent (see section 30, subsection 23(3A) and paragraphs 23(2)(ba) and 23(3)(aa) of the Income Tax Rates Act 1986); and
- withdrawals to purchase a first home were not subject to income tax and other withdrawals were also generally not subject to income tax.
1.26 FHSA providers were required to report a range of relevant information to the Commissioner of Taxation (Commissioner), as set out in Division 391 in Schedule 1 to the Taxation Administration Act 1953.
1.27 Following these amendments, there will be no FHSAs. As a result the tax concessions and reporting requirements will become inoperative - there will be no FHSAs to which these concessions can apply. Accounts that were previously FHSAs will be treated in the same way as other deposit or transaction accounts.
1.28 This means that, for example, the holders of former FHSAs, not the providers of the account would be liable for income tax on any interest earned on the account and that this tax would be payable at the individual's marginal rate of income tax rather than a fixed rate of 15 per cent rate.
1.29 As the current tax provisions dealing with FHSAs will become inoperative, they will be repealed. [Schedule 1, items 45 to 117, 151 to 174, 188 to 192, the definition of 'fringe benefit' in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986, subsection 5(2B) of the Income Tax Act 1986, the definitions of 'assessment', 'FHSA', 'FHSA trust' and 'full self-assessment taxpayer' in subsection 6(1), subparagraph 26AH(7)(ba)(i), section 95AA, subparagraph 102MD(a)(ii), paragraphs 124ZM(3)(d), 124ZM(3)(da) and 124ZM(6)(a), the definition of 'complying superannuation/FHSA class of taxable income' in paragraph 124ZM(6)(a), paragraph 202(kb) and the definitions of 'interest-bearing account', 'interest bearing deposit' and 'unit trust' in section 202A of the Income Tax Assessment Act 1936 as well as paragraph 272-100(e) in Schedule 2F to the Income Tax Assessment Act 1936, table item 8A in section 9-1, the table item headed 'reimbursement' in section 10-5, the table item headed 'first home saver accounts' in 11-55, section 15-80, paragraphs 51-120(c) and (d), subparagraphs 115-100(a)(ii), 115-100(b)(iia) and 115-280(a)(ia), paragraphs 115-280(2)(a), 115-280(2)(b), 115-280(5)(a), 115-280(5)(b), 166-245(2)(ba) and 166-245(3)(ba), subsection 205-15(3), paragraphs 205-30(2)(a), 207-15(2)(a), 207-35(1)(c) and 207-45(ca), subsection 210-175(2), the definition of 'complying superannuation/FHSA class of taxable income' in subsection 210-175(2), subparagraph 290-5(c)(iii), paragraphs 290-5(d) and (e), the method statement in subsection 295-10(2), section 295-171, table item 4A in section 296-495, paragraph 295-555(1)(b), the note to subsection 295-555(1), paragraph 295-555(3)(b), subsection 295-555(4), paragraphs 295-615(1)(d) and (e), section 320-1, paragraphs 320-80(2)(b) and 320-85(2)(ba), subsection 320-107(3), the definition of 'complying superannuation/FHSA class rate' in subsection 320-107(3), Division 345, subparagraph 380-15(1)(d)(iv) and subsections 713-545(6) and subsection 995-1(1) of the ITAA 1997, subsection 3(1), paragraphs 23(2)(ba) and (3)(aa), subsection 23(3A), paragraph 23A(b) and section 30 of the Income Tax Rates Act 1986 and table items 4 and 16 in subsection 8AAB(4) and paragraph 15C(8)(c) in the Taxation Administration Act 1953 as well as paragraphs 12-1(3)(b), 45-120(2)(c), 45-120(2)(ca), 45-120(2A)(b), 45-290(2)(c) and 45-290(2)(d), subsection 45-290(3), paragraphs 45-330(2)(c) and 45-330(2)(d), the method statement in subsection 45-330(3), paragraphs 45-370(2)(c) and 45-370(2)(d), the method statement in subsection 45-370(3), table items 24D, 24E and 38C in subsection 250-10(2), subsections 286-75(2B), 286-75(2C), 288-70(1) and 288-70(2), paragraph 288-70(2)(a), table item 6 in subsection 355-65(3), table item 5 in subsection 355-65(4), table item 2 in subsection 355-65(5) and Division 391 in Schedule 1 to the Taxation Administration Act 1953]
1.30 There are a number of Commonwealth Acts that contain provisions dealing with FHSAs or refer to FHSAs or concepts related to FHSAs.
1.31 As these provisions and references will become redundant following the repeal of the FHSA Act, they will be repealed as a consequence of these amendments. [Schedule 1, items 4 to 44, 118 to 150, 175 to 187, 193 to 194, the definitions of 'contribution', 'FHSA' and 'FHSA provider' in section 5 and table items 43A and 43B in subsection 6(2) of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006, the definition of 'prudential framework law' in subsection 3(1), paragraphs 3(2)(g) and (h), the note to subsection 3(2) and the definitions of 'protected document' and 'protected information' in subsection 56(1) of the Australian Prudential Regulation Authority Act 1998, paragraphs 12A(1)(h) and 12BAA(7)(ga) of the Australian Securities and Investments Commission Act 2001, subparagraph 11CA(1)(a)(iii), paragraph 11CA(1)(c), subparagraphs 11CA(2)(aa)(ii) and (iii), subsection 18A(5), the definition of 'reviewable decision of APRA' in section 51A, subsection 62A(4), paragraph 69(3)(b) and the note to subsection 69(3) of the Banking Act 1959, the definitions of 'FHSA product' and 'managed investment scheme' in section 9, the definition of 'basic deposit product' and 'FHSA product' in section 761A, table item 2A in subsection 761E(3), paragraphs 761E(3A)(ba), 764A(1)(ha) and 766E(3)(cb), subsection 946AA(1A), paragraph 961F(c), the definition of 'relevant financial product' in subsection 1016A(1) and subparagraphs 1017D(1)(b)(iiia) and 1019A(1)(a)(iiia) of the Corporations Act 2001, the definitions of 'leviable body', 'leviable FHSA entity' and 'levy' in section 7 and subsection 8(7) of the Financial Institutions Supervisory Levies Collection Act 1998, subparagraphs 14(2)(a)(ii) and (iii), 14(4)(b)(ii) and (iii), subsections 74(1), 74(2), 126(1), 126(2) and 216(1), the note to subsection 216(1), subsections 230A(14), 230B(11) and 236(1AA) of the Life Insurance Act 1995, paragraph 8(8)(ba), the definitions of 'financial investment', 'investment' and 'return' in subsection 9(1), paragraph 9(1C)(cb), subsection 9(9B), the definitions of 'trust', 'investment' and 'return' in subsection 23(1) and paragraphs 1118(1)(fa), 1207P(1)(c) and 1207P(1)(d) of the Social Security Act 1991, paragraphs 29G(2)(f) and (v), subsection 108A(3) and the note to subsection 108A(3) of the Superannuation Industry (Supervision) Act 1993, paragraph 5H(8)(ia), the definitions of 'financial investment', 'investment' and 'return' in subsection 5J(1), paragraph 5J(1C)(cb), subsection 5J(6B) and paragraphs 52(1)(faa), 52ZZB(1)(c) and 52ZZB(1)(d) of the Veterans' Entitlements Act 1986 and the heading specifying First Home Saver Accounts Act 2008 in Division 2 of Part 1 and items 4 and 5 in Schedule 8 of the Omnibus Repeal Day (Spring 2014) Act 2015]
Application and transitional provisions
Application and transitional provisions
1.32 The cessation of the FHSAs Scheme will have effect from 1 July 2015 - from this date FHSAs will cease to be FHSAs. [Schedule 1, items 195 and 197]
1.33 Consistent with this, the repeal of the FHSA Act as well as the various consequential repeals and amendments apply from 1 July 2015. [Schedule 1, items 195 and 197]
1.34 From this date, former FHSA holders will not receive any of the benefits of their accounts being first home savers accounts - for example, the account will now be taken into account in determining their eligibility for social security benefits. Similarly, FHSAs will also cease to be subject to the prior legislative restrictions - for example, a FHSA holder would be able to withdraw all of the money in their account for any purpose, regardless of what contributions they may have made and the current status of their account.
1.35 Consistent with the general rules around repeals of legislation, this repeal does not affect entitlements and obligations that have arisen prior to the day of repeal. The FHSA laws will continue to apply in relation to things done before 1 July 2015 and to things after 1 July 2015 in relation to entitlements and obligations that have arisen prior to the day of repeal. [Schedule 1, subitem 197(2) and items 200, 201 and 202]
1.36 For example, while a FHSA holder would now be able to freely withdraw the money held in their account, if they had withdrawn amounts before the repeal applied they are still potentially subject to FHSA misuse tax and penalties in relation to these withdrawn amounts. Similarly, while a FHSA provider would no longer be required to meet the reporting requirements that applied to FHSAs in respect of a former FHSA or requests to directly transfer the whole amount of a former FHSA into superannuation, they would remain subject to penalties for any breach of these requirements in relation to the period before the day of repeal.
1.37 However, certain reporting and other obligations under the FHSA Act will cease to apply from 1 July 2015 even where they arose in relation to matters before 1 July 2015 where the nature of the obligations would make them redundant following the repeal. [Schedule 1, item 203]
1.38 For the purposes of the tax law, as accounts will cease to be FHSA from 1 July 2015, the tax concessions relevant to FHSAs will have no application after this date and former FHSAs will be treated for tax purposes in the same way as any other savings or deposit account. For example, any interest payments made after 1 July 2015 will generally be income of the account holder and not that of the account provider.
1.39 The consequential repeal of the now inoperative provisions of the tax law dealing with FHSAs will also have effect from 1 July 2015. The saving and transitional provisions ensure that this repeal will not affect the tax treatment of FHSAs during the period prior to the repeal. [Schedule 1, subitem 197(2) and items 198 to 202]
1.40 The Commissioner, the Australian Securities and Investments Commission and the Australia Prudential Regulation Authority will retain the power to undertake compliance action with respect to the application of the laws relating to FHSAs before the day of repeal, and where necessary, undertake appropriate action, including recovery of past payments and enforcement against past breaches of the FHSA Act or tax law. [Schedule 1, items 198 to 202]
1.41 While the repeal of the FHSAs Scheme generally only applies from 1 July 2015, entitlement to a Government contribution will cease to arise from 1 July 2014. As a result, these amendments specify that no entitlement to a Government contribution will arise for the 2014-15 financial year or any later income year. [Schedule 1, subitem 204(1)]
1.42 However, this does not affect any existing entitlements of an individual to Government FHSA contributions that have already arisen prior to the repeal. [Schedule 1, subitem 204(2)]
1.43 Such existing entitlements will be rare - most taxpayers will have received any contribution to which they are entitled for the 2013-14 year prior to 1 July 2015 as all that they need do to claim their entitlement is to lodge a tax return for the income year.
1.44 However, if a taxpayer does not lodge a tax return and does not separately notify the Commissioner of their entitlement to a Government FHSA contribution, the period in which taxpayers could seek to claim an entitlement to a Government FHSA contribution is indefinite. However, in the context of the cessation of the FHSAs Scheme, maintaining the administrative framework necessary to process such claims indefinitely would impose an unreasonable burden on the Australian Taxation Office.
1.45 Instead, this Schedule will prevent the Commissioner from paying a Government FHSA contribution where the individual lodges the relevant tax return or gives the relevant notice after 30 June 2017. [Schedule 1, subitem 204(3)]
First Home Saver Accounts opened after Budget night
1.46 In its announcement of the cessation of the FHSAs Scheme, the Government made clear that FHSAs opened in respect of applications made after the announcement would not receive any of the benefits from the Scheme.
1.47 To give effect to this, the amendments will provide that such accounts have never been eligible to be FHSAs, with effect from Budget night. As a consequence, they will have never been entitled to matching Government contributions nor to any of the tax and social security concessions provided to FHSAs. [Schedule 1, item 196]
Tax file numbers
1.48 Following the repeal of the FHSA Act, individuals that quoted a tax file number to their FHSA provider for the purposes of the FHSA Act, will be taken to have quoted the tax file number to the entity that was their FHSA provider, in respect of the account that was a FHSA, for the purposes of the tax file number rules in Part VA of the ITAA 1936. [Schedule 1, item 205]
1.49 This ensures that individuals who have already quoted their tax file number need not quote it again simply because their account ceases to be a FHSA. Individuals that do not wish for their tax file number to be recorded in relation to an investment may contact the investment provider to request this at any time.
STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
Cessation of the First Home Saver Accounts Scheme
1.50 This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
1.51 Schedule 1 to this Bill will repeal the legislation establishing the FHSAs Scheme and providing for the payment of the Government matching contribution - the First Home Saver Accounts Act 2008, the First Home Saver Account Providers Supervisory Levy Imposition Act 2008 and the Income Tax (First Home Saver Accounts Misuse Tax) Act 2008.
1.52 Schedule 1 will also amend the tax law and the social security law to remove tax and social security concessions available to first home saver accounts (FHSAs).
Human rights implications
1.53 This Schedule does not engage any of the applicable rights or freedoms.
1.54 Broadly, measures relating to the affordability of housing can engage the right to an adequate standard of living. This right, broadly, encompasses the right to have affordable and secure access to a habitable and accessible dwelling with that is provided essential services.
1.55 What this right does not encompass is a right to own a dwelling.
1.56 Obviously, a scheme that places individuals or groups that otherwise faced challenges in accessing adequate housing to purchase a home would be engage with the right to adequate housing.
1.57 However, the FHSAs Scheme is not such a scheme. The FHSAs Scheme provides concessions and Commonwealth support for individuals who are already in a position to save towards the purchase of their first home. Access to the Scheme is not linked to wealth or income and, the benefits it provides are both linked to how much an individual is able to save.
1.58 It is improbable that individuals would be in a position where they can afford to save the significant amounts to purchase a home, even with the assistance provided by the FHSAs Scheme, but are unable to obtain adequate housing on the rental market.
1.59 In addition, even if the FHSAs Scheme were engaged with the right, its removal would be a reasonable and proportionate measure.
1.60 Take up of the Scheme has been very limited, with only 47,000 FHSAs in existence as of September 2014 and there has been no evidence it has been effective in addressing concerns about housing affordability.
1.61 Maintaining a poorly subscribed scheme where there is little basis on which to conclude, it has achieved its intention or assisted in the access to adequate housing, is a reasonable step to address the legitimate objective of efficient use of government resources.
1.62 This Schedule is compatible with human rights as it does not raise any human rights issues.