House of Representatives

Explanatory Memorandum

Circulated by the authority of the Treasurer, the Hon Wayne Swan MP

Chapter 1 - Opening and making contributions

Outline of chapter

1.1 Parts 1 and 2 of the main Bill provide for the general operation of the First Home Saver Accounts Bill 2008 (FHSA Bill 2008) and key concepts and definitions. Division 1 of Part 3 outlines the eligibility rules for opening and issuing First Home Saver Accounts (FHSAs) and Division 2 of Part 3 outlines the rules for making contributions into accounts.

1.2 This chapter outlines the key concepts and definitions that apply throughout the FHSA Bill 2008 including: the definition of an FHSA; what it means to provide an FHSA; and what a qualifying interest in a dwelling is. Other definitions are dealt with in the discussion of the provisions to which they relate.

1.3 This chapter also outlines the eligibility and contribution rules for FHSAs including:

•

the rules for opening, issuing or holding an FHSA; and

•

the rules relating to contributions into an FHSA including the account balance cap and limits on when contributions can be paid into an FHSA.

Context

1.4 FHSAs are designed to assist aspiring first home buyers achieve the goal of owning their first home in which to live by providing a tax effective way to save. The Government provides benefits to first home buyers using FHSAs through a Government contribution paid directly into the account and the taxation of earnings on accounts at a low rate.

1.5 To achieve the objective of assisting aspiring first home buyers, it is necessary to ensure that these benefits are only provided to individuals who are saving for a first home in which to live. This is achieved by requiring individuals to satisfy certain eligibility criteria to open or be issued with and hold an FHSA.

•

A uniform set of criteria is used to determine an individual's eligibility to open an FHSA. These criteria are similar, but not identical, to those used by the States and Territories to assess eligibility for the First Home Owner Grant (FHOG).

•

Unlike the FHOG, eligibility to open an FHSA is determined on an individual basis and is not affected by the eligibility of an individual's partner. This means that an FHSA can only be held by an individual, not jointly. The FHOG arrangements will remain in place.

1.6 In addition, to ensure that the assistance provided to first home buyers is targeted appropriately, there are limitations on the amount that can be saved in FHSAs and other restrictions on contributions that can be made into accounts.

Summary of new law

Eligibility to open an First Home Saver Account

1.7 Before being able to open an FHSA, an individual must satisfy certain eligibility criteria. They must be aged 18 and over and under 65 years and open the account for themselves (where the individual is incapacitated, their legal personal representative may open an account for them).

1.8 As the accounts are to be used to assist individuals to save for their first home, the applicant must never have previously owned a dwelling that has been their main residence. This test is based on the individual and does not take into account whether a current or former partner has previously owned a home.

1.9 To help individuals and the Commissioner of Taxation (Commissioner) track FHSAs, the individual must provide their tax file number (TFN) to their FHSA provider. This helps to ensure that individuals only open one account and assists the Commissioner in paying Government contributions (outlined in Chapter 3).

1.10 To ensure the integrity of the eligibility requirements, the Commissioner will undertake compliance work to ensure that individuals who open an FHSA are eligible and that only one account is opened by each individual. Penalties may apply to individuals and/or FHSA providers for breaching the eligibility requirements, including criminal penalties in certain circumstances.

Contributions to a First Home Saver Account

1.11 There are no restrictions on who can make a contribution into an FHSA, however, all contributions must be made from post-tax amounts.

1.12 To ensure that the taxation incentives are appropriately targeted, there is an overall account balance cap of $75,000. This cap is indexed annually in $5,000 increments.

1.13 A Government contribution is also paid to an FHSA where personal contributions are made to an FHSA during the financial year. The details of the Government contribution are discussed in Chapter 3.

Detailed explanation of new law

Key concepts and definitions

First Home Saver Accounts

1.14 FHSAs can only be opened or issued after 1 October 2008. [ Subsection 8(b )]

1.15 An FHSA can only be offered by certain prudentially regulated financial institutions: authorised deposit taking institutions (ADIs); life insurance companies (including friendly societies); and registrable superannuation entity (RSE) licensees which can provide public offer superannuation funds and are authorised to offer FHSAs.

•

Trustees of other superannuation funds, including self managed superannuation funds, non public offer funds and exempt public sector superannuation funds, are not able to offer FHSAs as they are not subject to the same level of prudential regulation as trustees of public offer superannuation funds.

•

In addition, managed investment schemes and other investment vehicles that are not prudentially regulated are not able to offer FHSAs. Chapter 4 outlines in further detail the requirements for offering FHSAs and Chapter 5 outlines the prudential requirements applying to FHSA providers.

1.16 As FHSAs can be offered by three different types of institutions, the legal nature of an FHSA will differ depending on the type of institution offering it. An FHSA offered by an ADI will be a deposit account, those offered by a life insurance company will be a policy, and those offered by RSE licensees will be beneficial interests in a trust. This affects the definitions of an FHSA and the meaning of 'hold' and 'FHSA holder' and the definition of 'provide' and 'FHSA provider'.

Authorised deposit-taking institutions

1.17 An ADI is a body corporate that is an ADI under the Banking Act 1959 . This includes banks, building societies and credit unions. [ Section 18 ]

1.18 An account is an FHSA if contributions are received by an ADI to an account described as an FHSA. [ Subparagraph 8(c)(i) ]

1.19 If provided by an ADI, an individual holds an FHSA if the account is opened in their name. The individual is therefore the FHSA holder . [ Paragraph 9(1)(a) and subsection 9(2) ]

1.20 If an ADI accepts or has accepted contributions to an FHSA it provides the FHSA. The ADI is therefore the FHSA provider . [ Paragraph 10(1)(a) and subsection 10(2) ]

Life insurance companies

1.21 A life insurance company is a company registered under the Life Insurance Act 1995 . This includes friendly societies. [ Section 18 ]

1.22 A life policy is an FHSA if the FHSA policy is issued by a life insurance company and it is described as an FHSA [ subparagraph 8(c)(ii) ].

•

The terms 'policy' and 'life policy' are defined in the Life Insurance Act 1995 [ section 18 ].

1.23 If issued by a life insurance company, an individual holds an FHSA if the individual owns the FHSA policy. The individual is the FHSA holder [ paragraph 9(1)(b) and subsection 9(2) ].

•

The term 'owner' is described in the Life Insurance Act 1995 [ section 18 ].

1.24 If a life insurance company provides an FHSA policy it provides an FHSA. The life insurance company is therefore the FHSA provider . [ Paragraph 10(1)(b) and subsection 10(2) ]

Authorised trustees

1.25 A beneficial interest in a trust is an FHSA if it is provided by a trustee authorised as an FHSA provider and the interest is described as an FHSA [ subparagraph 8(c)(iii) ].

•

A trustee may apply to receive authorisation as an FHSA provider under section 92 [ section 18 ].

1.26 If provided by a trustee, an individual holds an FHSA if the individual holds the beneficial interest in the FHSA trust. The individual is therefore the FHSA holder . [ Paragraph 9(1)(c) and subsection 9(2) ]

1.27 If a trustee provides a beneficial interest in an FHSA trust it provides an FHSA. The trustee is therefore the FHSA provider . [ Paragraph 10(1)(c) and subsection 10(2) ]

1.28 The trust which is provided by a trustee authorised as an FHSA provider is defined as an FHSA trust . [ Section 18 ]

First Home Saver Account contributions

1.29 A contribution is defined as a contribution of money. It includes a deposit into an account held at an ADI and a payment of a premium to a life insurance company. [ Section 18 ]

1.30 There are no restrictions on who can make a contribution into an FHSA; however, all contributions must be made from post-tax amounts.

•

As with other payroll deductions, an employer is still able to remit post-tax contributions on behalf of an employee to an FHSA.

1.31 To assist the Commissioner administer the accounts, FHSA contributions are grouped into two categories:

•

Government contributions; and

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personal FHSA contributions.

Government contributions

1.32 The Commissioner pays a Government contribution to an FHSA where personal FHSA contributions are made to an individual's FHSA during the financial year and the individual is an Australian resident for taxation purposes for at least part of that year. This Government contribution is applied to the first $5,000 (indexed) of personal FHSA contributions made in the year.

1.33 Accordingly, a Government contribution (Government contribution) for an individual is a contribution or amount paid by the Commissioner for that individual under the FHSA Bill 2008 [ subsection 11(1) ].

•

Chapter 3 outlines when a Government contribution is payable.

Personal First Home Saver Account contributions

1.34 The FHSA Bill 2008 also defines what contributions are taken into account when the Commissioner calculates an individual's Government contribution.

1.35 To ensure that the Government contribution is only paid on contributions to the FHSA system, a personal FHSA contribution does not include:

•

a Government contribution [ subsection 11(2) ];

•

a contribution of an FHSA balance as a transfer from a previous FHSA for the individual under section 35 [ paragraph 11(3)(a) ];

•

a contribution under a family law obligation [ paragraph 11(3)(b) ]:

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family law obligation means a court order under the Family Law Act 1975 or a financial agreement made under Part VIIIA of the Family Law Act 1975 that is binding because of section 90G of that Act [ section 18 ];

•

a re-contribution of an amount previously paid from an FHSA to satisfy the FHSA payment conditions under subsection 17(3) [ paragraph 11(3)(c) ]; and

•

a contribution refunded to the individual under the Corporations Act on the grounds of [ paragraph 11(3)(d) ]:

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an unsolicited offer, under subsection 992A(4) [ paragraph 11(3)(d) ];

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a defective product disclosure document, under section 1016F [ paragraph 11(3)(d) ]; or

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exercise of the cooling-off period, under section 1019B [ paragraph 11(3)(d) ].

1.36 A personal FHSA contribution includes a contribution which is made for the benefit of the individual. For example, a contribution made by an individual's partner or employer into their FHSA.

Qualifying interest in a dwelling

1.37 The concept of qualifying interest in a dwelling is directed at ensuring that FHSAs are used to assist aspiring first home buyers to purchase a first home in which to live. To achieve this, the term is used for two purposes in the Bill.

•

It forms part of the eligibility requirements to open an FHSA, as an individual must not hold and have never held a qualifying interest in a dwelling that is or was the individual's main residence [ paragraph 15(1)(c) ].

•

It forms part of the payment conditions enabling the use of money from an FHSA to acquire a qualifying interest in a dwelling that will become the individual's main residence [ paragraph 32(1)(b) and subsection 17(1) ]. This is outlined in further detail in Chapter 2.

1.38 If an individual is the legal owner of the dwelling, they hold a qualifying interest in the dwelling. An individual will hold a qualifying interest in the dwelling if they hold the interest alone or with others, for example, under a joint tenancy. [ Subsection 12(1) ]

Legal Owner

1.39 An individual holds an interest if they are the legal owner; that is, if their name is recorded on the title register as the owner of the property. This is commonly referred to as freehold ownership.

1.40 Persons can also hold such an interest if they:

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have an estate in fee simple ;

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have a perpetual lease of the land granted by the Commonwealth or the State;

•

have a lease or licence granted by the Commonwealth, a State or Territory that may be converted into an estate in fee simple under the terms of the lease or licence;

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have title to a dwelling under a long-term Crown lease, such as in the Australian Capital Territory;

•

are the registered proprietor of a flat or home unit that is part of a strata plan; or

•

have a legal life estate in the land (rather than a mere equitable life estate in the land);

1.41 A person is considered to be the owner even if a financial institution or someone else holds a mortgage over the property.

1.42 A qualifying interest in a dwelling includes, but is not limited to where the individual has a Crown lease, or a licence granted by the Commonwealth, a State or Territory, over the land which the dwelling is on and that lease or licence gives the individual reasonable security of tenure [ subsection 12(2) ].

•

The term Crown lease is defined in section 124-580 of the Income Tax Assessment Act 1997 (ITAA 1997) as a lease of land granted by the Crown under an Australian law (other than the common law) or a similar lease granted under a foreign law.

1.43 A qualifying interest in a dwelling also includes, but is not limited to where a person:

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holds an equity of redemption in respect of the dwelling;

•

is the legal owner of a share in a company that owns land on which a flat or home unit is erected and that share gives them a right to occupy the flat or home unit; or

•

holds a right to occupy a dwelling in an aged care facility or retirement village.

[ Subsection 12(3) ]

1.44 The regulations may also specify circumstances where an individual holds a qualifying interest in a dwelling. [ Subsection 12(4) ]

1.45 An individual first holds a qualifying interest in a dwelling when they acquire the dwelling. This is relevant to deciding whether the FHSA eligibility requirements in paragraph 15(1)(c) are satisfied. [ Subsection 12(6) ]

Fixed to land

1.46 If the dwelling is not fixed to land (or in circumstances specified in the proposed regulations) an individual is not considered to hold a qualifying interest in a dwelling. [ Subsection 12(5) ]

1.47 A boat, caravan or mobile home, is not a qualifying interest in a dwelling unless it is fixed to land which the individual owns.

•

The phase 'fixed to land' adopts the property law concept of fixtures.

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If a dwelling is or was a moveable dwelling but has become so attached to the land that it forms a part of the land, it will be a fixture, and therefore legal ownership of the land may constitute the holding of a qualifying interest in a dwelling. If, however, the moveable dwelling is not so attached, ownership of it will not be treated as a qualifying interest in a dwelling.

Example 1.1

Bailey is constructing a dwelling. He will acquire a qualifying interest in the dwelling when he starts to hold the qualifying interest in the dwelling; that is, when construction of the dwelling has been completed.

Dwelling

1.48 Dwelling has its ordinary meaning. This includes a unit of accommodation that is fixed to the land such as:

•

a house, flat, unit, apartment or townhouse; or

•

a demountable dwelling or re-locatable home where it is fixed to land.

Main Residence

1.49 Under the eligibility criteria in section 15 and the FHSA payment conditions in section 17, the dwelling being acquired must become the main residence of the FHSA holder. A payment can only satisfy these conditions if an amount equal to the payment is used to acquire a dwelling that becomes the account holder's main residence for the requisite minimum period of time.

1.50 An individual's main residence has its ordinary meaning. Factors which may be relevant include:

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whether the individual and/or their family is living in the dwelling;

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whether they keep personal belongings at the dwelling;

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whether mail is delivered to the dwelling; and

•

whether the dwelling address is on the electoral roll against the name of the individual.

[ Subsection 13(1) ]

1.51 The regulations may also specify whether a dwelling is or is not an individual's main residence for the purposes of the FHSA Bill 2008. [ Subsections 13(2) and (3) ]

Example 1.2

Rod lives in a rented house and also rents an apartment where he stays for short holidays. The house is where Rod spends most of his time. It is also his mailing address and his address on the electoral roll. The apartment is not Rod's main residence

Rod wishes to purchase the apartment but still live mainly in his rental home. Rod cannot use his FHSA balance to make a payment to purchase a holiday home as it will not be his main residence.

Eligibility rules

First Home Saver Account eligibility requirements

1.52 To ensure FHSAs are used to save towards the purchase of a first home, to be eligible to open, be issued with, or hold an FHSA, an individual must satisfy certain FHSA eligibility requirements .

Personal requirements

1.53 As FHSAs are intended for adults saving for a first home, the individual must be aged at least 18 years [ paragraphs 15(1)(a) and (b) ].

•

The individual must apply to open or be issued with an FHSA personally. For example, an employer is not able to open an FHSA on behalf of an employee or a trustee is not able to open an FHSA for a beneficiary unless the beneficiary is incapacitated.

•

Where an individual is incapacitated, their 'legal personal representative' as defined in the ITAA 1997 may open an account for them.

1.54 The individual must not open or be issued with an FHSA prior to reaching 18 years of age. If an FHSA provider inadvertently opens or issues them with an FHSA, they will not become eligible to open, be issued with, or hold an FHSA when they reach 18 years of age. [ Paragraphs 15(1)(a) and (b) ]

1.55 FHSA funds not used to purchase a first home must be transferred to superannuation. As an individual who is 65 years of age must satisfy a work test to make a contribution to superannuation, an individual must be under 65 years of age to open an account. [ Paragraph 15(1)(b) ]

1.56 Payments can only be made from an FHSA to purchase a first home if personal contributions of at least $1,000 have been made in respect of the FHSA holder in each of at least four financial years [ subparagraph 32(1)(c)(i) ].

•

This will have implications for individuals who open or are issued with an FHSA close to 65 years of age as they will need to satisfy this requirement in order to receive a payment to acquire a qualifying interest in a home. If they cannot satisfy this requirement, they will be required to contribute their savings to superannuation [ paragraphs 15(1)(b) and (c) ].

1.57 An individual must not hold and have never held a qualifying interest in a dwelling that is or was the individual's main residence. [ Paragraph 15(1)(c) ]

First Home Saver Account requirements

1.58 To ensure that individuals can generally only access the benefits offered by FHSAs once and cannot access multiple Government contributions or avoid the account balance cap, the individual must have only held one FHSA at a time or temporarily held two FHSAs at the same time to allow them to transfer an FHSA balance to a new FHSA [ paragraphs 15(1)(a) and (e) ].

•

This transfer is provided for under section 35 of the FHSA Bill 2008.

1.59 The individual must have never held an FHSA that was closed unless it was closed as:

•

an FHSA home acquisition payment was made from the FHSA and that payment met the FHSA payment conditions under subsection 17(3), as it is being re-contributed to an FHSA:

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FHSA home acquisition payments are made under section 32 of the FHSA Bill 2008;

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an initial FHSA contribution to an FHSA was refunded to the individual under the Corporations Act on the grounds of:

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an unsolicited offer, under subsection 992A(4);

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a defective product disclosure document, under section 1016F; or

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the exercise of the cooling-off period, under section 1019B.

[ Paragraph 15(1)(f) and subsection 15(2) ]

1.60 Individuals do not have any specific obligations under the FHSA Bill 2008 to enable them to open an FHSA.

•

However if they do not provide an FHSA provider with all of the information it requires, they are not able to open, be issued with, or hold an FHSA.

•

If individuals make false statements about their eligibility to open, be issued with, or hold an FHSA, or deliberately open more than one FHSA, penalties apply. These penalties are necessary to ensure the integrity of the FHSA system and to ensure that the taxation incentives provided through FHSAs are targeted appropriately.

1.61 When an individual makes a statement to an FHSA provider, they are taken to have made a statement to a taxation officer under subsection 8J(9) of the Taxation Administration Act 1953 (TAA 1953).

1.62 If an individual makes a false or misleading statement in the FHSA application, they commit an offence under section 8K of the TAA 1953 (for making a false or misleading statement) or section 8N of the TAA 1953 (for recklessly making a false or misleading statement).

Obligations of the First Home Saver Account provider in opening or issuing a First Home Saver Account

1.63 FHSA providers have an obligation to ensure that an individual applying to open, be issued with, or hold an FHSA provides the required information to satisfy the eligibility criteria. These requirements are in addition to any requirements stipulated under other laws, such as the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 .

1.64 To open or issue an FHSA, an FHSA provider must ensure that an individual has completed an application in the approved form which states that they satisfy all of the FHSA eligibility requirements [ paragraph 19(1)(a) and subparagraph 19(1)(b)(i) ].

•

Approved forms are discussed in further detail in Chapter 8.

•

This includes, but is not limited to, an approved form issued by the Commissioner under section 388-50 in Schedule 1 to the TAA 1953 [ section 55 ].

•

The FHSA provider is only able to open or issue an FHSA where the FHSA is for a single individual. That is, joint FHSAs are not permitted as two people cannot hold, own or have a beneficial interest in the same FHSA.

1.65 To ensure that only one account is opened per individual:

•

if the individual already has an FHSA, the application must state that the individual will transfer the old FHSA balance to the new FHSA for the individual. This is under section 35 of the FHSA Bill 2008; or

•

if the individual previously held an FHSA which was closed, the application must state that the individual is opening the new FHSA to receive a re-contribution of an amount previously paid from an FHSA to satisfy the FHSA payment conditions under subsection 17(3).

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The individual must still meet the FHSA eligibility requirements to re-contribute the payment. That is, not have acquired a qualifying interest in a dwelling which is their main residence.

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Their previous FHSA contributions were refunded to the individual under the Corporations Act on the grounds of: an unsolicited offer under subsection 992A(4); a defective product disclosure document under section 1016F; or the exercise of a cooling-off period under section 1019B.

[ Subparagraphs 19(1)(b)(ii) and (iii) ]

Example 1.3

Annika received a payment from her FHSA in June 2015 which she used to place a deposit on a home. Her FHSA was closed.

In July 2015, Annika was notified by the home owners that they no longer wished to sell the property and the deposit was refunded to her.

Annika wishes to continue to save for a home and would like to re-contribute the refunded deposit to an FHSA. As her original FHSA is closed, Annika will be able to open a new FHSA within six months to continue saving.

1.66 In addition, to ensure that only one account is opened for each individual, an FHSA provider must also check the individual has quoted their TFN in connection with the operation of the FHSA Bill 2008 and the Superannuation Acts [ paragraph 19(1)(c) ].

•

The TFN quotation arrangements are outlined in Part 5 of the FHSA Bill 2008 and regulate the quotation use and storage of an individual's TFN. This is outlined in Chapter 8.

1.67 An FHSA provider commits an offence if they open or issue an FHSA where the individual has not completed an application in the approved form (which states they are eligible) and quoted their TFN. The penalty is up to 100 penalty units. [ Subsection 19(2) ]

1.68 If an FHSA provider fails to comply with these obligations, the FHSA created is still valid. [ Subsection 19(3) ]

Ceasing to be eligible to hold an First Home Saver Account

1.69 It is important to ensure that, once opened or issued, an FHSA is only held by an individual who is saving to purchase a first home. An individual ceases to be eligible to have an FHSA if they acquire a qualifying interest in a dwelling that is their main residence or once they turn 65 years of age.

1.70 If an FHSA holder fails to meet the FHSA eligibility requirements, they must notify the FHSA provider in the approved form within 30 days. [ Subsections 20(1) and (2) ]

Implications of becoming ineligible for an account

1.71 Once an individual becomes ineligible to hold an FHSA, the account must be closed and generally the balance must be transferred to superannuation. However, where the individual is 60 years or over, the individual may elect to receive a payment from the FHSA directly. This is a permitted purpose for a payment out of an FHSA and is discussed in further detail in Chapter 2.

1.72 As a result, when notifying the FHSA provider, an FHSA holder must either:

•

state they are 60 years or over and would like to receive a payment from the FHSA directly; or

•

authorise the FHSA provider to contribute the savings in the FHSA to their interest in a complying superannuation plan:

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a 'complying superannuation plan' is defined in the ITAA 1997 [ section 18 ].

[ Subsection 20(4) ]

1.73 If an FHSA holder fails to comply with these requirements, there may be consequences under the TAA 1953.

•

The FHSA holder is liable for an administrative penalty under section 286-75 of Schedule 1 to the TAA 1953.

•

The FHSA holder may also commit an offence for failure to comply with requirements set out under a taxation law under section 8C of the TAA 1953.

[ Subsection 20(1 ), Note ]

Exceptions to the requirements

1.74 An individual is not required to notify the FHSA provider if they close their FHSA within 30 days of becoming ineligible or if the funds in the account are paid out under section 32 within 30 days to acquire a qualifying interest in a home. [ Subsection 20(3) ]

Example 1.4

Judy acquires a qualifying interest in a dwelling on 15 August 2010 by using a deposit bond and loan from MT Bank Ltd. She moves into the dwelling on 17 August 2010 and it becomes her main residence. From that date she becomes ineligible to hold the ac

On 25 August 2010, Judy applies to her FHSA provider, the WT Life Insurance Company (WT Life), for a payment for the purpose of repaying the deposit bond. As this is within 30 days of becoming ineligible, she is not required to notify WT Life.

Revoking a notice

1.75 If an FHSA holder subsequently realises that they do satisfy the account criteria they may revoke the notice.

1.76 However, the notice cannot be revoked if:

•

it has been more than 30 days since the original notice was provided; or

•

the FHSA has been closed by the FHSA provider under paragraph 22(2)(b).

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If the FHSA provider has already made a direct payment to the FHSA holder or contributed the FHSA to superannuation but the FHSA is still open, the notice can also not be revoked as it would be administratively difficult to unwind the transaction.

[ Subsection 20(5 ]

Example 1.5

On 15 February 2011, Aidan inherits a home from his great grandmother's estate. On 20 February 2011, he notifies his FHSA provider, RDR Bank Limited that he no longer satisfies the eligibility criteria. On 27 March 2011, RDR Bank Limited contributes th

On 30 March 2011, Aidan realises that, as he has not and never intends to live in the home, he still satisfies the account criteria and notifies RDR Bank Limited that he revokes the notice. Although Aidan has revoked the notice, as the savings have already been contributed to the JR Superannuation Fund, the revocation has no effect.

The Commissioner believes that the eligibility criteria have not been met

1.77 As part of compliance activities, the Commissioner conducts checks to ensure that individuals are eligible to hold an FHSA.

1.78 If the Commissioner believes that an FHSA holder did not satisfy the eligibility criteria when the FHSA was opened or issued or that the FHSA holder no longer satisfies the eligibility criteria, the Commissioner is required to notify the FHSA provider. [ Subsection 21(1) ]

1.79 The notice must explain that the FHSA provider must:

•

contribute the savings in the FHSA to superannuation and close the FHSA under section 22;

•

not pay contributions to the FHSA under section 26; and

•

not pay amounts from the FHSA under sections 31, 32 and 35.

[ Subsection 21(3) ]

1.80 The Commissioner must also give the FHSA holder a copy of this notice. This allows the FHSA holder an opportunity to respond to the notice if they believe they meet the eligibility criteria. [ Subsection 21(2) ]

1.81 The conditions for opening an FHSA require an individual to quote their TFN. If an FHSA holder has quoted an invalid TFN, the Commissioner may give a notice under section 67 that the Commissioner is not satisfied the individual has a TFN. This notice must also explain the effects of sections 22, 26, 32 and 35. [ Paragraph 113-B(1)(a), Note ]

1.82 If the Commissioner subsequently believes that an FHSA holder did satisfy the conditions for opening an FHSA when the FHSA was opened or issued and continues to satisfy the eligibility criteria, the Commissioner must revoke the notice unless:

•

it has been more than 30 days since the original notice was provided; or

•

the FHSA has been closed by the FHSA provider under paragraph 22(2)(b).

[ Subsection 21(4) ]

1.83 If the Commissioner revokes the notice, the Commissioner must also notify the FHSA holder so that they are aware that the Commissioner no longer believes they do not satisfy the eligibility criteria. [ Subsection 21(5) ]

Inactive First Home Saver Accounts

1.84 To ensure that FHSAs are held only by individuals who are eligible to hold an FHSA, an FHSA may become inactive if certain events occur.

1.85 An FHSA becomes inactive if an FHSA provider has received a notice (which has not been revoked):

•

from the FHSA holder, under subsection 20(1), that they do not meet the eligibility criteria;

•

from the Commissioner, under subsection 21(1), that the FHSA holder did not satisfy the eligibility criteria when the FHSA was opened or issued or holds (or previously held) a qualifying interest in a dwelling which is their main residence; or

•

from the Commissioner, under subsection 67(2), that the TFN quoted by the FHSA holder is invalid and the Commissioner is not satisfied they have a TFN.

[ Subsection 23(1) ]

1.86 An FHSA also becomes inactive if:

•

the FHSA holder makes a home acquisition payment under section 32, or a payment directly to the FHSA holder under section 33, and the FHSA balance is nil;

•

the FHSA holder turns 65 years of age; or

•

the FHSA was opened or issued under subparagraph 19(1)(b)(ii) as the FHSA holder was transferring FHSA savings from another FHSA, and the transferred savings were not received within 44 days of opening or issuing the new FHSA.

[ Subsections 23(2) to (4) ]

Closing an inactive First Home Saver Account

Closing a First Home Saver Account

1.87 Where an FHSA has become inactive, the FHSA provider must either:

•

make a payment to the FHSA holder directly (if the FHSA holder is 60 years or over and has authorised the payment); or

•

otherwise contribute the FHSA balance to superannuation; and

•

close the FHSA.

[ Subsection 22(2) ]

1.88 If the FHSA provider contributes the FHSA to superannuation, the FHSA provider must make the contribution:

•

to the FHSA holder's nominated own interest in a complying superannuation plan; or

•

if no nominated fund exists, to the FHSA provider's default superannuation plan.

[ Subsection 22(3) ]

1.89 The timeframe within which the FHSA must be closed differs depending on the reason for the account being inactive.

1.90 If an FHSA is inactive because the FHSA provider has received a notice that the FHSA has become inactive under subsection 23(1) the FHSA provider must allow 30 days for the notice to be revoked. If the notice is not revoked, the provider must close an individual's FHSA 14 days after the end of the 30-day waiting period. [ Paragraph 22(1)(a) ]

Example 1.6

An FHSA provider receives a notice on 1 November 2010 that the FHSA holder does not meet the account criteria under subsection 21(1). The FHSA provider must not pay contributions or make payments until 30 November 2010 to give the Commissioner an opport

The FHSA provider then has until 15 December 2010 (14 days after the end of the waiting period) to make a payment (if the FHSA holder is over 60 and authorises the payment) or contribute the FHSA to superannuation and close the account. This allows the FHSA provider a total of 44 days from 1 November 2010 to satisfy its obligations.

1.91 In all other circumstances an FHSA provider must close an inactive FHSA 14 days after:

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a payment being made under subsection 23(2);

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the FHSA holder reaching 65 years of age under subsection 23(3); or

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a transfer not being received 44 days after the FHSA was opened or issued under subsection 23(4).

[ Paragraph 22(1)(b) ]

1.92 An FHSA provider commits an offence if the FHSA provider fails to close the FHSA in accordance with its obligations. The penalty is up to 100 penalty units. [ Subsection 22(4) ]

1.93 If an FHSA provider fails to close the FHSA in accordance with its obligations, any contribution paid or payment made is still valid. [ Subsection 22(5) ]

Default superannuation plan

1.94 As an FHSA provider may be required to contribute the balance of an FHSA to superannuation to enable it to close an FHSA, it must specify a default superannuation plan in which to make the payment if the FHSA holder has not nominated a plan.

1.95 All FHSA providers are required to nominate in writing a default superannuation plan. This is a complying superannuation plan to which it will make payments under paragraph 22(3)(b) [ subsection 24(1) ].

•

It is intended that the FHSA provider will be required to disclose this default superannuation plan to the FHSA holder when an FHSA is opened or issued.

1.96 If the FHSA needs to change its default superannuation plan as the plan ceases to be a complying superannuation plan, the FHSA provider must nominate another default superannuation plan in writing [ subsection 24(1) ].

•

It is intended that the FHSA provider will be required to disclose this new default superannuation plan to the FHSA holder when this occurs.

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The FHSA provider may also change its default superannuation plan at other times by making a written nomination stating the new default superannuation plan. It is also intended that the FHSA provider notify the FHSA holder when this occurs.

1.97 An FHSA provider commits an offence if it fails to comply with its obligations to nominate a default superannuation plan. The penalty is up to 100 penalty units. [ Subsection 24(2) ]

Contributions

1.98 To ensure that the assistance provided to first home buyers is targeted appropriately, there are limitations on the amount that can be saved in an FHSA and other restrictions on contributions that can be made to an FHSA.

1.99 Generally, an FHSA provider must not allow an amount to be contributed to an FHSA where the account holder is aged 65 or over, the FHSA is inactive or the account balance cap has been or will be breached.

An account holder aged 65 or over

1.100 An FHSA holder is not eligible to hold an FHSA once they turn 65 years of age, and under section 22 an FHSA provider is required to close an FHSA within 14 days of the FHSA holder turning age 65.

1.101 If an FHSA holder is aged 65 years or over and the FHSA is still open, the FHSA provider must not allow any contributions, personal or Government, to be paid to the FHSA [ subsection 25(1) ].

•

If an FHSA holder is eligible to receive a Government contribution it may be paid by the Commissioner directly to the FHSA holder [ section 41 ].

Inactive First Home Saver Account

1.102 An FHSA provider must not pay any contributions to an inactive FHSA. [ Subsection 26(1) ]

Breach of the account balance cap

1.103 In order to ensure that the FHSA taxation incentives are targeted appropriately, there is an overall account balance cap on all FHSAs.

Account balance cap

1.104 In the 2008-09 financial year the account balance cap is $75,000. This cap will be indexed in $5,000 increments under section 30 [ section 29 ].

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The financial year means the financial year as defined in the ITAA 1997 [ section 18 ].

Breach of account balance cap - limit on contributions

1.105 An FHSA provider can only allow a limited range of contributions to be made to an FHSA if the FHSA balance is over the account balance cap or the contribution would cause the FHSA balance to exceed the account balance cap. Other amounts contributed to an FHSA are not allowed in these circumstances. [ Subsection 27(1) ]

1.106 In these circumstances, an FHSA provider may only allow the following contributions to be paid to the FHSA:

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a Government contribution defined under subsection 11(1);

•

a contribution of an FHSA balance transferred to a new FHSA for the individual FHSAs under paragraph 11(3)(a); or

•

a re-contribution of an amount under paragraph 11(3)(c) as it was an amount previously paid from an FHSA to satisfy the FHSA payment conditions subsection 17(3).

[ Paragraph 27(1)(b) ]

Example 1.7

Megan's account balance is $70,000. On 1 May 2010, Megan makes a contribution of $5,000 to her FHSA. If the account balance cap is $75,000, the contribution does not exceeded the account balance cap.

Megan is entitled to a Government contribution of $780 on her $5,000 contribution. Her FHSA provider will be able to pay the Government contribution to her FHSA as, although it will cause her FHSA balance to exceed $75,000, the payment of a Government contribution does not cause her to exceed the account balance cap.

Breach of the account balance cap - return of contributions

1.107 If an FHSA provider receives a contribution which would cause the FHSA balance to exceed the account balance cap, it is not necessary for the whole amount of the contribution to be rejected or returned. The amount in excess of the account balance cap may be rejected or returned. [ Paragraph 27(1)(b), Note ]

Example 1.8

Michael has an account balance of $73,000. On 1 November 2010 he makes a $3,000 personal FHSA contribution to his FHSA. If the account balance cap is $75,000 and the entire contribution is paid to his FHSA, it will exceed the account balance cap.

The account balance cap is only exceeded if the FHSA balance exceeds $75,000. The FHSA provider is not able to pay the entire contribution to his account; however, to ensure Michael's FHSA does not exceed the account balance cap it may either:

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return the entire $3,000 to him so that his account balance remains at $73,000; or

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return $1,000 to him (the amount which exceeds the account balance cap) so that his account balance does not exceed the account balance cap of $75,000.

Breach of the account balance cap - timing

1.108 If the account balance of an FHSA exceeds the account balance cap, an FHSA holder is in breach of the account balance cap from that time onwards [ subsection 28(1) ].

•

If the account balance of an FHSA subsequently falls below the account balance cap, an FHSA holder will have still breached the cap from the time it was originally breached.

Example 1.9

On 28 April 2009, Steven makes a contribution to his FHSA and his balance reaches $75,000. On 15 August 2009, Steven's FHSA provider pays earnings of $1,000 to his FHSA and his account balance is $76,000. If the account balance cap is $75,000, Steven's

On 1 November 2009, Steven's FHSA suffers an investment loss of $1,500 and his account balance falls to $74,500. As Steven breached the cap on 15 August 2009, Steven's FHSA provider is still only able to pay a limited range of contributions to his FHSA, despite the fact his actual account balance is below the current account balance cap.

Breach of the account balance cap - re-contribution

1.109 If an individual is making a re-contribution of an amount previously paid from an FHSA to satisfy the FHSA payment conditions under subsection 17(3), they will not have breached the account balance cap even if the re-contributed amount is above the current account balance cap.

•

If the re-contributed amount is above the current account balance cap, an FHSA provider is only able to pay limited contributions to the FHSA as the FHSA exceeds the current account balance cap.

•

If the re-contributed amount is not above the current account balance cap, an FHSA will have not breached the account balance cap from the time the new FHSA is opened, until the time when the new FHSA balance exceeds the new account balance cap.

•

If the account balance cap has increased since the FHSA holder received a payment from the original FHSA, they will not have breached the cap in the new FHSA until the account balance in the new account breaches the cap.

[ Subsections 28(2) and (3) ]

Example 1.10

In June 2009, the balance of Elise's FHSA is $75,000. In July 2009, her account is credited with $500 of earnings. If the account balance cap is $75,000, the FHSA provider will only be able to pay a limited range of contributions to her FHSA.

In December 2009, Elise withdraws the balance of her FHSA, now $75,500, to purchase a home. The sale of the home falls through in July 2010.

In July 2010, Elise applies to her FHSA provider to open a new FHSA as she failed to purchase a home and would like to continue saving. Assuming the account balance cap has increased to $80,000, Elise is able to contribute the full $75,500. She will not have breached the account balance cap until her account balance exceeds $80,000.

Breach of account balance cap - family law obligations

1.110 If a payment is made from an FHSA under a family law obligation under paragraph 31(1)(c) and, after this payment is made the FHSA balance is less than the account balance cap in that year, the FHSA holder will have not breached the account balance cap from the time the payment is made, until such time as the FHSA balance exceeds the account balance cap. [ Subsections 28(4) and (5) ]

Indexation of account balance cap

1.111 To ensure that the account balance cap is aligned with an individual's ability to save, the account balance cap is indexed annually to full-time average weekly ordinary time earnings.

1.112 The account balance cap is indexed annually, by multiplying the account balance cap for the 2008-09 financial year by its indexation factor. The result is rounded down to the nearest $5,000, to ensure that the cap remains in round figures [ subsection 30(1) ].

•

The indexation factor is the proportional change in full-time adult average weekly ordinary time earnings from the middle month of the December quarter 2007 to the middle month of the December quarter just before the relevant financial year. The indexation factor is calculated to four decimal places and rounded to three decimal places [ subsections 30(3) and (4) ].

1.113 The amount cannot be reduced by indexation; that is, it is not indexed if the indexation factor is less than one. [ Subsection 30(2) ]

Example 1.11

If the indexation calculation increases the threshold to $80,500, the indexed amount is rounded down to $80,000.

Penalties

1.114 An FHSA provider must only pay limited contributions to an FHSA where:

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the holder is 65 years or over;

•

the FHSA is inactive; or

•

the account balance cap has been breached.

[ Sections 25 to 27 ]

1.115 If the FHSA provider allows another type of contribution to an FHSA, but returns the contribution within 30 days of receipt, the provider will not contravene these requirements. [ Subsections 25(2), 26(2) and 27(2) ]

1.116 An FHSA provider commits an offence if it allows an amount to be contributed to an FHSA in these circumstances. The penalty is up to 100 penalty units. [ Subsections 25(3), 26(3) and 27(3) ]

1.117 If an FHSA provider fails to comply with its obligations to not allow a contribution in these circumstances, the contribution is still valid. [ Subsections 25(4), 26(4) and 27(4) ]