Superannuation is the way many Australians save for their retirement. But it can also be used for many other things.
As we know, your super fund receives contributions, and the funds are in turn invested into different asset classes so it can continue to accumulate during your working life. Then traditionally, upon retirement, you convert it into an income stream (i.e. pension) to fund your life post-work.
Since your super is your money anyway, you might be wondering if you can use it for other things. If you have wondered how to buy a house using the money you have saved in your superannuation, this article will tell you whether it is possible or not based on your individual circumstances.
The answer to this question depends on what kind of house you plan to get. People purchase homes for different reasons; some need a place to live, while others want a real estate investment. What property type are you planning to purchase with your super?
Buying an Investment Property Using Your Superannuation
Firstly, you may wish to purchase an investment property as a source of growth and income for your super.
Be aware that you need to follow the strict guidelines set by the Australian Taxation Office (ATO) for this. Do your research well, especially since the process involves a lot of administrative and legal responsibilities. Some of the essential things to note about the process are the following:
- The ATO will request you to open an SMSF (Self-Managed Superannuation Fund).
- You need to ensure that the Trust Deed of the SMSF and the SMSF’s Investment Strategy allow it.
- The property must:
- meet the ‘sole purpose test’ of solely providing retirement benefits to fund members
- not be acquired from a related party of a member
Furthermore, you need to remember that any property you purchase through this method can never be lived in or rented by the SMSF members or their relatives, unless it is a commercial property (and even then, you must pay market-rate rent).
One final item to note is that borrowing within your super to purchase property involves very strict borrowing conditions. Prior to commencing this process, you should thoroughly research ‘limited recourse borrowing arrangement’.
Using Superannuation to Fund a House Deposit
With the rising cost of housing in Australia, the government has released several initiatives over time to relieve the pressure on First Home Buyers when purchasing or building their first home. The current initiative referred to as First Home Super Saver Scheme you can apply to have a maximum of $15,000 of your voluntary (before-tax) contributions from any one financial year included in your eligible contributions to be released under the FHSS scheme, up to a total of $30,000 contributions across all years. As with all previous initiatives, you must meet the ATO’s eligibility criteria.
Note: the 2021/2022 Federal Budget has proposed for the total withdrawal amount to increase to $50,000, however, this is not yet law.
Here are some important conditions to note:
- For Accumulators: You must meet the set conditions first before accessing your superannuation.
- For Pre-Retirees/Retirees: Consider how a withdrawal of this size will affect your overall superannuation balance and subsequent ability to fund your life in retirement.
Buying a House to Live in Using Your Superannuation
If you plan to purchase a house to live in permanently using your superannuation money – it is impossible. However, there is another alternative with specific requirements.
Instead of buying the house directly from your superannuation, you can withdraw your superannuation as a lump sum and use the proceeds to purchase your home. However, to do so, you must reach meet a condition of release as outlined by the ATO.
As with using some of your super for a house deposit, it is vital that you consider how a withdrawal of this size will affect your overall superannuation balance and subsequent ability to fund your life in retirement. You may in fact find that a better strategy for you could be to continue renting long-term
The process of utilising one’s superannuation for property purchasing can be highly detailed and specific. Before you apply, make sure you understand everything about it. You need to understand the process, how much it costs you, the consequences of this choice, and the limitations and risks involved in the process.
If you would like some guidance on how you can purchase property through your superannuation as a pre-retiree or retiree, Central Coast Financial Planning Group has experienced financial advisers for property investment that could help you understand the process.
Disclaimer: The views expressed in this publication are solely those of the author; they are not reflective or indicative of RI Advice Group’s position and are not to be attributed to RI Advice Group. They cannot be reproduced in any form without the express written consent of the author. This information (including taxation) is general in nature and does not consider your individual circumstances or needs. Do not act until you seek professional advice. Newcastle Financial Planning Group, Central Coast Financial Planning Group, Sydney Wealth Advisers, Coastal Advice Port Macquarie and Coastal Advice Ballina Byron are subsidiaries of Coastal Advice Group which is a Corporate Authorised Representative of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429.