Emily: when the law is applied correctly — but the outcome still feels wrong

Emily, a single parent, contacted our office after experiencing significant financial hardship following an error made when interacting with the First Home Super Saver (FHSS) scheme.

Emily intended to request an FHSS determination, but instead mistakenly lodged a request for release of her superannuation. Under the FHSS scheme, released amounts are paid to the ATO and treated as a credit, which can be automatically offset against existing tax debts. As a result, the released funds were applied to Emily’s prior ATO debts.

When Emily realised the error, she contacted the ATO to explain that she had not intended to access the funds at that stage. Due to rising living costs and financial pressure, she was unable to recontribute the amount or proceed with purchasing a home. She felt she had effectively lost the benefit of the FHSS scheme and was facing what she described as a “double penalty”.

We investigated the ATO’s administration of the FHSS release and the subsequent offsetting of the funds. This involved reviewing the relevant legislation, examining the timing of the release authority and offset, and engaging with the ATO about the scope of its discretion once the statutory process had occurred.

Our review found that the ATO’s actions were lawful and consistent with the legislative framework. Once the release occurred, the offset to existing tax debts was mandatory and there was no discretion available to reverse it. No defective administration was identified.

However, the outcome was clearly harsh, particularly given the purpose of the FHSS scheme and Emily’s personal circumstances. While we were unable to secure an individual remedy, the case highlighted broader fairness concerns about how FHSS releases can interact with existing debts and the limited safeguards available once a mistake is made.

These issues were escalated for systemic consideration, including referral to Treasury, to ensure the policy intent of the FHSS scheme is not undermined in similar cases.