FHSS Tax Treatment — How the First Home Super Saver Scheme Is Taxed

The tax treatment of the FHSS scheme is the main reason it can be more effective than saving in a bank account. Here’s a full breakdown of how FHSS is taxed at each stage.

Tax on Contributions

Concessional contributions (salary sacrifice or personal deductible)

When you make concessional FHSS contributions:

• Taxed at 15% contributions tax on entering the fund (instead of your marginal income tax rate)
• The tax saving vs saving outside super depends on your marginal rate

For most workers (32.5%+ marginal rate), the annual tax saving on $15,000 of concessional FHSS contributions is approximately $2,000–$4,500.

Non-concessional contributions (after-tax personal contributions)

Non-concessional FHSS contributions are made from money that has already been taxed at your marginal rate — no additional contributions tax applies, and there is no tax deduction. The benefit of using these for FHSS is that they are withdrawn tax-free.

Tax Inside the Fund (Earnings)

Your FHSS contributions sit in your regular super account and are invested. Earnings inside super are taxed at 15% (in accumulation phase).

However, for FHSS release calculations, the ATO applies a deemed earnings rate — the 90-day bank bill rate + 3% (approximately 6–7% depending on market conditions). This deemed rate is used to calculate “associated earnings” on your FHSS contributions, not the actual investment returns.

Tax at Withdrawal (Release)

When you withdraw your FHSS savings:

For concessional contributions and their associated earnings:

• Taxed at your marginal rate for that income year
• Minus a 30% tax offset (the 15% contributions tax you’ve already paid, doubled as an additional concession)
• Effective tax rate is approximately: marginal rate − 30%

For non-concessional contributions:

• The non-concessional component is tax-free on withdrawal

Example — concessional FHSS release:

At a marginal rate of 32.5%, the effective tax rate on FHSS withdrawal is approximately 2.5% — much lower than any alternative savings vehicle.

FHSS in Your Tax Return

In the year you receive an FHSS release, you must:

1. Include the FHSS assessable amount as income in your tax return
2. Claim the 30% tax offset for concessional FHSS amounts
3. The ATO will have withheld tax at the time of release — this is reconciled in your tax return (you may get a refund or owe a small additional amount)

The ATO sends a FHSS payment summary showing the taxable and tax-free components.

If You Don’t Buy a Home

If you release FHSS funds but don’t buy a property:

• You can recontribute to super within 12 months (as a non-concessional contribution) — no FHSS tax
• Or pay FHSS assessed tax: your marginal rate + an additional 20% on the assessable amount

The recontribution option is strongly preferable if plans change.

Frequently Asked Questions

Is the 30% tax offset applied automatically or do I need to claim it? You claim the 30% tax offset in your income tax return for the year you receive the FHSS release. The ATO sends you a payment summary (FHSS payment summary) showing the assessable and tax-free components, and you (or your tax agent) include this in your return and apply the offset. The offset is not automatic — missing it means you pay more tax than required.

What withholding rate does the ATO apply when releasing FHSS funds? The ATO withholds tax at the time of release using a rate based on your income. For most earners, the withholding rate is approximately 17% of the concessional FHSS component (reflecting the 32.5% marginal rate less the 30% offset). You reconcile the actual amount in your tax return — you may receive a refund or owe a small extra amount depending on your total income for the year.

If I receive my FHSS release in a year when my income is lower than usual, does that help? Yes — FHSS release is assessed at your marginal rate in the year of receipt. If you receive the release in a year with lower income (e.g., during parental leave, a career break, or in a year before starting work), your marginal rate will be lower and you pay less tax on the concessional component. This is a legitimate planning opportunity — timing the release for a lower-income year can improve the after-tax outcome.

Are non-concessional FHSS contributions really tax-free on withdrawal? Yes — the non-concessional component of your FHSS release is tax-free, because those contributions were made from money that had already been taxed at your marginal rate. The 30% tax offset only applies to the concessional component. Associated earnings on non-concessional contributions are, however, still taxable (assessed at marginal rate less 30% offset, like concessional earnings).

Does FHSS release count as income for Centrelink or HECS-HELP repayments? The assessable FHSS component (concessional contributions plus all associated earnings) is included in your taxable income for the year you receive it. This can affect: (1) HECS-HELP repayment threshold — a large FHSS release in one year may trigger a higher compulsory repayment; (2) Centrelink income tests for that year. Non-concessional contributions released are tax-free and do not count as taxable income.

What tax applies to associated earnings inside super before release? The fund invests your contributions in its investment options and earns actual returns — these are taxed at 15% inside the super fund as part of normal super taxation. However, for the FHSS release calculation, the ATO uses a deemed earnings rate (90-day bank bill rate + 3%), not the fund’s actual investment returns. The deemed earnings are then taxed on your assessment at marginal rate less 30% offset — the fund’s actual tax on real earnings is not passed through separately.

For more: FHSS Eligibility, FHSS Contribution Strategy, FHSS How to Apply, FHSS Mistakes to Avoid, After-Tax vs Before-Tax Super Contributions. For advice tailored to your situation, speak with a licensed financial adviser via MoneySmart.