First Home Saver Accounts put to rest

Legislation to abolish First Home Saver Accounts was passed in the Senate last week, bringing an end to a well-intentioned scheme that was poorly constructed and failed to attract much support.

The repeal of the FHSA scheme applies from July 1. Under the amendment contained in Tax and Superannuation Laws Amendment (2015 Measures No.1) Bill 2015, accounts that are currently FHSAs will cease to be FHSAs and will no longer be eligible for concessional tax treatment or government co-contributions.

The repeal measure was announced in last year's Budget and accounts opened after May 13 last year were not eligible to be FHSAs.

The scheme, which was launched in 2008, was designed to help people save for a first home. Interest was taxed at a concessional rate of 15 per cent and the Government made a co-contribution of 17 per cent of the first A$5000 contributed each year over four years.

Account holders had to make deposits over four years and withdrawals had to go to the purchase of a first home.

According to the Australian Prudential Regulation Authority, there were 47,400 FHSAs open in September last year with total balances of $606.6 million.

Research conducted over the years found that consumers did not like having to lock their money away. Under the original scheme first-home buyers could not put their FHSA savings towards a home until four years had passed. If they bought a house before the four years was up the money in the FHSA would go into their superannuation account.

The Government made some improvements to the scheme in 2010 but they had little impact.