Superannuation is usually a means to save a nest egg for retirement.
But using super to purchase property is becoming a more widely considered option by both first homebuyers and those on the cusp of retirement.
Mortgage broker and Director at ACT Finance Solutions, Fiona McKinnon, suggests seeking advice from a superannuation specialist before considering a property purchase with super.
In the meantime, here’s some basics you might need to know.
How can superannuation be used to buy property?
Generally, superannuation can be used to purchase property in two ways – using a self-managed super fund or through the Federal Government First Home Saver (FHSS) scheme.
A self-managed super fund enables trustees to make investments, including buying property, while first homebuyers can use super to get a foot on the property ladder by making voluntary super contributions to save for a house deposit.
The FHSS scheme can be a good idea if you’re saving for a deposit and want to make the most of the tax benefits offered in superannuation. However, you can only use voluntary super contributions that you have personally made since July 1, 2017, not the compulsory super paid by your employer.
Alternatively, Australians with a self-managed super fund can decide where their super is invested, be it in shares, fixed-income securities or other investments like property.
“Excluding self-managed super, first home buyers can use their additional voluntary concessional (before tax) super contributions to assist in purchasing their first owner-occupier property,” Ms McKinnon said. “However, this is only available for first homebuyers.”
Several eligibility criteria will need to be met, including never having owned property in Australia before and not previously making a release request under the scheme.
But there is no requirement to be an Australian citizen, Australian resident or an Australian resident for taxation purposes.
What sort of property can I buy using my super?
The type of house you will buy will largely be determined by your circumstances.
For example, for self-managed super funds, Australians can use superannuation to buy any property, so long as it is an investment and not a home you plan to live in. This means it would need to be occupied by a tenant on an ongoing basis.
If you’re a first homebuyer using the FHSS scheme, you must live in the property for at least six months in the first year.
How much of my super can I use to buy property?
A property can be purchased outright by a self-managed super fund with cash from the fund, or a self-managed super fund loan can be obtained. However, borrowers are not able to use all of the funds as a deposit.
There are also some restrictions on borrowing capacity through a self-managed super fund and you cannot use the full balance to buy property.
If you choose to make use of the FHSS scheme, a determination will be made advising a maximum amount you can withdraw to be used as a house deposit.
The total eligible contributions that can count towards your releasable amount is $15,000 each financial year, to a maximum total of $50,000.
Talk to the experts
Ms McKinnon said people considering delving into their superannuation to buy property should consult a superannuation specialist for financial advice and guidance.
“Setting up a self-managed super fund is a highly regulated process and you should have a clear understanding of your financial and tax responsibilities, so it is prudent to speak to a superannuation specialist if you are considering going down this path,” she said.
“Similarly, first homebuyers will want to do their homework and research on the First Home Super Saver scheme to make sure it’s the right choice for them to save a deposit.”