House of Representatives

Explanatory Memorandum

(Circulated by authority of the Assistant Treasurer and Minister for Financial Services, the Hon Stephen Jones MP)

Chapter 4: Improving the flexibility of the First Home Super Saver Scheme

Outline of chapter

4.1 The FHSS Scheme allows individuals to make voluntary contributions into the superannuation system and to later withdraw those contributions and an amount of associated earnings for the purposes of purchasing or constructing their first home.

4.2 Schedule 4 to the Bill makes technical amendments to the TAA and the ITAA 1997 to improve the flexibility of the FHSS Scheme.

Context of amendments

4.3 The FHSS Scheme was first introduced as part of the 2017-18 Budget. In the 2021-22 Budget, the then Government announced four technical changes to the legislation underpinning the FHSS Scheme to improve its operation and users' experience with it. The technical changes involve:

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increasing the discretion of the Commissioner of Taxation to amend and revoke FHSS Scheme applications ('FHSS Scheme application' refers to a request for a 'first home super saver determination' under Division 138 in Schedule 1 to the TAA or a request for a 'release authority' that relates to a FHSS determination under Division 131 in Schedule 1 to that Act, as the case may be);

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allowing individuals to withdraw or amend their FHSS Scheme applications before receiving a FHSS Scheme amount, and allowing those who withdraw to re-apply for FHSS Scheme releases in the future;

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allowing the Commissioner of Taxation to return any FHSS Scheme amounts to superannuation funds, provided the amount has not yet been released to the individual; and

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clarifying that FHSS Scheme amounts returned by the Commissioner of Taxation to superannuation funds are treated as funds' non-assessable non-exempt income and do not count towards individuals' contribution caps.

Comparison of key features of new law and current law

Table 4.1 Comparison of new law and current law

Detailed explanation of new law

4.4 Schedule 4 to the Bill makes various amendments to the TAA and the ITAA 1997 to give effect to the technical changes.

4.5 Individuals and the Commissioner of Taxation are generally able to amend or revoke FHSS Scheme applications, provided a FHSS Scheme amount has not already been paid to the individual (under the legislation, a FHSS Scheme amount is effectively considered to be paid to an individual if the Commissioner of Taxation has begun the process of paying the amount to the individual, even though the individual may not have received the amount yet). Any amended FHSS Scheme applications must still comply with the underlying criteria and policy intention of the scheme (for example, individuals who now own a home cannot continue progressing FHSS Scheme applications and have a FHSS Scheme amount paid to them). [Schedule 4, items 14 to 16 and 18 to 26, sections 131-5, 131-10, 131-12, 131-30, 138-10, 138-12, 138-13 and 138-15 of Schedule 1 to the TAA]

4.6 In certain circumstances, FHSS Scheme amounts paid to the Commissioner of Taxation can be returned to superannuation funds or the relevant individual. This generally occurs where the individual's FHSS Scheme application has been amended or revoked and their entitlement to a FHSS Scheme amount has ceased. In very limited circumstances, the Commissioner of Taxation may be able to repay FHSS Scheme amounts directly to the relevant individual or their legal personal representative. These circumstances involve the individual satisfying a condition of release with a nil cashing restriction (for example, the individual is at least 65 years old). [Schedule 4, items 17 and 27, sections 131-80 and 355-65 of Schedule 1 to the TAA]

4.7 FHSS Scheme amounts returned to superannuation funds are not included in the fund's or individual's assessable income and do not count towards an individual's contribution caps. [Schedule 4, items 1 to 6, sections 306-10, 307-5 and 307-120 of the ITAA 1997]

4.8 Returned FHSS Scheme amounts are afforded the appropriate status in terms of their tax free and taxable components. This helps ensure that returned FHSS Scheme amounts are subject to the same taxation treatment as if they had never been released to the Commissioner of Taxation under the FHSS Scheme. [Schedule 4, item 7, section 307-143 of the ITAA 1997]

4.9 Consequential amendments are made to the taxation rules in relation to the FHSS Scheme in Division 313 of the ITAA 1997 to ensure these rules account for the increased flexibility provided by the technical changes. In particular, to avoid potentially being liable to pay FHSS tax, individuals have up to 90 days (previously 14 days) to request a release authority after they enter into a contract to purchase or construct a home. The 90-day period applies in relation to FHSS determinations made on or after the commencement of Schedule 4 to the Bill. [Schedule 4, items 8 to 13, sections 313-10, 313-15, 313-35 and 313-40 of the ITAA 1997]

4.10 Amendments have been made to provisions which determine an individual's eligibility for the FHSS Scheme. For an individual to be eligible for the FHSS Scheme, the individual must first make a request for a FHSS determination. An individual can only do this if certain conditions are satisfied. One of these conditions is that the individual has never held a relevant interest in real property or land (see paragraph 138-10(2)(a) in Schedule 1 to the TAA). Amendments have been made to ensure this condition refers to the point in time at which an individual becomes a property owner. In the case of a standard contract for the purchase and sale of real property, the purchaser becomes a property owner once the contract is completed and ownership of the real property transfers to the purchaser. As per the application provision provided by item 28 of Schedule 4 to the Bill, the amendments apply in relation to FHSS determinations made on or after the commencement of Schedule 4 to the Bill. [Schedule 4, items 20 and 21, subparagraphs 138-10(2)(a)(i) and 138-10(2)(a)(ii) of Schedule 1 to the TAA]

Commencement, application, and transitional provisions

4.11 The amendments commence on a day to be fixed by Proclamation. However, if the provisions do not commence within the period of 12 months beginning on the day the Bill receives Royal Assent, they commence on the day after the end of that period. The commencement by proclamation and 12-month contingency period are necessary to ensure that the ATO and other stakeholders have sufficient time to update their systems to administer and comply with the technical changes.

4.12 Consistent with the 2021-22 Budget announcement, the technical changes generally apply retrospectively to FHSS Scheme applications made from 1 July 2018. This helps ensure the increased flexibility provided by the amendments can be afforded to past cases. [Schedule 4, item 28]

4.13 Transitional provisions support the application of certain provisions and ensure that variations or revocations of certain FHSS Scheme applications that occurred before the commencement of the amendments continue to be in force. [Schedule 4, item 29]

4.14 Special transitional provisions extend the flexibility provided by the amendments to FHSS Scheme users who have had a FHSS determination made in relation to them prior to the commencement of the amendments and who have since started holding a relevant interest in real property or land. These individuals would otherwise be prevented from taking advantage of the amendments (because they now hold a relevant interest in real property or land and this would otherwise prevent them from amending their FHSS Scheme application). [Schedule 4, item 30]

4.15 The special transitional provisions have limited application. They only apply:

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in relation to FHSS determinations made before the commencement of the amendments;

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where the individual has begun holding the relevant interest in real property or land after the relevant determination was made;

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for the period of three years from commencement;

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if the individual has not already been paid a FHSS Scheme amount; and

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to allow an individual to release a FHSS Scheme amount up to the maximum amount the individual could have released at the time the original determination was made. [Schedule 4, item 30]