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FHSS witholding tax as a credit? What does this mean

Newbie

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We just did our release request, and it said that the witholding tax rate it estimated and we were happy with would be applied as a tax credit on the tax return... what does that mean???? surely there is no credit aspect involved anywhere in this process.... or is the money released with the full marginal rate applied (ie way less money in hand to actually buy the property) and then offset credited at tax time (ie wont actually have the full amount til we do tax return which would be an insane way to do it). Really confused by this. please clarify

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Most helpful response

Devotee

Replies 1

Hi mesana

 

Amounts released as part of an FHSS release may count as assessable income in the year.

 

There are generally four different types of money that can be released in an FHSS:

  • Personal contributions for which you will be claiming a tax deduction in your income tax return
  • Salary sacrifice contributions made via a salary packaging provider
  • Associated earnings on the released amount
  • Personal contributions for which you won't be claiming a tax deduction

 

The first three types are included in assessable income in the financial year you requested the release. The last type is not included in assessable income.

 

For FHSS released amounts, a 30% tax offset applies. So if you'd normally pay 34.5% tax on income you receive, you'll instead pay 4.5% on the FHSS release amount that's included in assessable income.

 

When the ATO receives the released amount from your super fund we estimate what your income for the year will be, and what marginal tax rate we should therefore apply to the assessable amount that's been released.

 

As an example. Let's say the released amount is $30,000 and all of this is included in assessable income. If we estimate your marginal tax rate will be 34.5%, we'll withhold 4.5% of $30,000 ($1,350), and pay the remaining $28,650 to your bank account.

 

When you lodge your tax return for the year, the $30,000 will be included in your assessable income, we'll calculate the tax payable on this part of your assessable income as $1,350, but we'll then see that you have a credit of $1,350 on your account (as we've already withheld this), so you then won't have any additional tax to pay at tax time.

 

I'm an ATO employee voluntarily providing my time here

2 REPLIES 2

Most helpful response

Devotee

Replies 1

Hi mesana

 

Amounts released as part of an FHSS release may count as assessable income in the year.

 

There are generally four different types of money that can be released in an FHSS:

  • Personal contributions for which you will be claiming a tax deduction in your income tax return
  • Salary sacrifice contributions made via a salary packaging provider
  • Associated earnings on the released amount
  • Personal contributions for which you won't be claiming a tax deduction

 

The first three types are included in assessable income in the financial year you requested the release. The last type is not included in assessable income.

 

For FHSS released amounts, a 30% tax offset applies. So if you'd normally pay 34.5% tax on income you receive, you'll instead pay 4.5% on the FHSS release amount that's included in assessable income.

 

When the ATO receives the released amount from your super fund we estimate what your income for the year will be, and what marginal tax rate we should therefore apply to the assessable amount that's been released.

 

As an example. Let's say the released amount is $30,000 and all of this is included in assessable income. If we estimate your marginal tax rate will be 34.5%, we'll withhold 4.5% of $30,000 ($1,350), and pay the remaining $28,650 to your bank account.

 

When you lodge your tax return for the year, the $30,000 will be included in your assessable income, we'll calculate the tax payable on this part of your assessable income as $1,350, but we'll then see that you have a credit of $1,350 on your account (as we've already withheld this), so you then won't have any additional tax to pay at tax time.

 

I'm an ATO employee voluntarily providing my time here

Newbie

Replies 0

Thanks

 

think this should probably explained in the ? for this bit of the form as it is a tad confusing