Can I Use My Super To Buy A House?

Using Your Super To Buy A Property – How Does It Work?

There are two primary ways to utilise your superannuation to buy a house. Both come with stringent conditions, but don’t let that put you off. Many Australians have utilised these opportunities to purchase a house, so it’s worth looking into whether they can work for you, too.

Self-Managed Super Fund (SMSF)

A self-managed super fund (SMSF) is a private super fund that you manage yourself. You decide how to use your retirement savings, which makes it a popular choice for Australians who want more control over their retirement savings. 

People with a SMSF can apply for a self-managed super fund loan to buy a new residential or commercial investment property, which provides more opportunities for investment and growing your retirement fund.

Essentially, an SMSF loan, which is also known as a limited recourse borrowing arrangement (LRBA), allows your self-managed super fund to borrow money to invest in property. That property will then be held in a custodian trust until the loan is repaid. You’ll make monthly payments on what is owed, accounting for interest.

Self-managed super funds can be set up in a couple of ways. If you want to set up an individual account and manage it alone, you must opt for a corporate trustee structure, as all individual trusts require at least two trustees. 

You can also set up a family account with a maximum of six family members. Every SMSF will need to appoint a trustee to take authority over financial management and investment decisions, and each family member will need to have a bank account, Tax File Number (TFN), and a unique Australian Business Number (ABN).

With self-managed super funds, you’re responsible for how you use the money. While that comes with some handy investment freedom, you’ll also need to ensure you meet certain rules and regulations. For example, you’ll need to comply with tax and super laws, and prove your investment serves no other purpose besides providing retirement income. There are also restrictions on what the property can be used for.

It’s worth seeking out guidance from an experienced adviser to make sure you have the information you need.

First Home Super Saver (FHSS)

If you’re a first-home buyer, the first home super saver (FHSS) scheme allows you to use some of your eligible voluntary super contributions towards buying your first home, helping you realise your dream of property ownership more quickly. 

The FHSS is available to both individuals and couples and is intended to help many would-be homeowners save a deposit more quickly. 

Essentially, the first home super saver scheme allows you to make personal voluntary contributions into your super fund to help you save for your first home, usually at a more beneficial tax rate.

When you’re ready, you can withdraw up to $15,000 of your voluntary contributions from any given financial year, withdrawing up to $50,000 towards a house purchase. (That’s per person – if you’re purchasing a house as a couple, the FHSS can be a significant savings boost towards a deposit.)

There are, of course, eligibility criteria. For example, you are ineligible if you’ve previously owned property in Australia, including investment properties. You also need to be 18 years or older to access the scheme.

Different Australian states and territories have their own criteria for qualification, so it’s important to look into the location where you want to buy. Also, make sure to request a FHSS determination before you proceed with a purchase. This will let you know how much money you can withdraw, the time limit in which you have to use the funds (usually within 12 months of release), and when those funds will be available to you.

How To Use An SMSF To Buy Property

If you have decided to use a self-managed super fund to buy a property, here’s a step-by-step guide to the process.

Step 1: Obtain Financial Advice

It’s always a good idea to make sure you’re fulfilling all of the rules and regulations. Start by meeting with a licensed financial advisor to get advice. 

Step 2: Establish Your Self-Managed Super Fund

Set up your self-managed super fund (if you haven’t already done so). If you’re employed, don’t forget to notify your employer and submit the necessary documentation.

Step 3: Decide On Your Investment Strategy

Create a strategy for investment that suits the retirement goals of all of your fund members. If you’re all on the same page and want to become property investors, or this is an individual account, this is the point where you can start looking into applying for a self-managed super fund loan.

Step 4: Research Properties

This is where the fun starts. Search for the perfect property to suit your SMSF. Start by establishing your budget and creating a wish list – property age and location, the type of home, and potential rental income. 

Step 5: Buy Your Property

If your self-managed super fund has the capability, you may be able to buy the property outright. Otherwise, consult an experienced mortgage broker to secure the best possible mortgage deal. Make sure you understand any associated buying costs, including stamp duty and estate agent fees. 

Step 6: Set Up Your Property Trust

Are you looking to buy the property with a mortgage? To ensure it is a limited recourse borrowing arrangement (LRBA), the property will need its own trust, separate from your SMSF. The SMSF’s bank account must be used to pay off this investment loan.

You will need to pay a 15% capital gains tax on rental income, along with any SMSF investment profits. Your property trust will need to take this into account.

For more information about using a self-managed super fund to buy a house, refer to the Australian Taxation Office.

How To Use The FHSS Scheme To Buy Property

If you want to use your super to buy a house, and you’ve never owned property in Australia before, the first home super saver scheme could boost you onto the property ladder. Here’s a step-by-step guide on how to use this scheme.

Step 1: Check Your Eligibility

Before you start making contributions to your super, check that you are eligible for the scheme and that accessing your super this way is permitted by your fund.

Step 2: Start Making Voluntary Contributions

You can do this in annual lump sums or throughout the year in smaller amounts. Think about your path to home ownership. If you’d like to use your super for savings over several years, remember that you can withdraw a total of $50,000 across multiple years, plus associated earnings. 

If you’re looking to save hard for a shorter time period, remember that you can withdraw up to $15,000 from one financial year.

Step 3: Set Up An Australian Taxation Office (ATO) Online Account

The ATO has a detailed guide on how to set up an online account. You may find your super fund’s online portal links with the ATO’s, prefilling many of the boxes for you.

Step 4: Request A FHSS Determination

Request a first home super saver scheme determination. This will tell you how much money you can withdraw by assessing your eligible contributions. In addition, the ATO will calculate the necessary tax deductions needed to enable you to fulfil your obligations at the end of the year. 

You can request a determination more than once, to see how you’re tracking. However, it’s essential to request a FHSS determination before you make an offer on a house (or get too far down the property purchasing path). 

Step 5: Request The Release Of Funds

Nominate your bank account and apply to withdraw money from your super. Remember: requesting a release of the funds starts a ticking clock. Funds under the FHSS scheme need to be used for a home purchase within 12 months of release.

Step 6: Purchase Your First Home

Congratulations on purchasing your first home! Once you have purchased the property, don’t forget to notify the ATO. 

For more information about using a self-managed super fund to buy a house, refer to the Australian Taxation Office.

Comparing Your Options: SMSF or FHSS?

The most important question to ask yourself is: Do I want to use my super to buy a home I can live in? 

If the answer is yes, and you haven’t owned property in Australia before (including investment properties, vacant land, a lease of land, commercial property, etc.), then the first home super saver scheme is the option for you.

If you’re not intending to live in the property (as a residence or holiday home for you or another fund member), and want to purchase the property solely for investment purposes, then the self-managed super fund might be right for you. (Commercial property investments do allow some exceptions for use. Consult your adviser for more information.)

Additional considerations

With both options, there are things to consider before diving in. The laws and regulations change fairly frequently regarding both options, so it is essential to stay on top of any changes to superannuation policies.

Using the first home super saver scheme to buy property

Buying a property with a super through an FHSS will reduce the amount in your superannuation account, so it may be worth consulting a financial planner for long-term advice. 

In addition, remember that once you request a release of the funds, they need to be used for a home purchase within 12 months of release. You’ll need to be confident that you want to buy within a year, or it’s better to wait and release the funds when you are confident.

Using a self-managed super fund to buy property

Before approaching an SMSF house purchase, you need to consider your overall investment goals for the fund. If your risk tolerance is low, property investment is likely a good option, as property tends to appreciate. (Investment advice can help confirm this; it always pays to run ideas past an expert.)

In addition, consider what might happen if there is a falling out between trust members, or if someone in your trust dies or finds their circumstances dramatically change. (For example, they might lose their job or change jobs.) This can make management more difficult. Ensure there are contingency strategies for repaying the loan in case of illness, death, or change of circumstances.

Summing Up 

Can you use your super to buy a house in Australia? The answer is yes! You can harness the power of your superannuation in two different ways. 

If you are looking to buy your first home in Australia, and you’ve never owned property in-country before, you can make voluntary contributions and then look into withdrawing a portion of those contributions through the first home super saver scheme. 

Alternatively, if you have a self-managed super fund, you can apply for a SMSF loan to buy a new residential or commercial investment property to help you grow your retirement fund.

If you have questions, we are happy to help. When you work with The Mortgage Agency, our expert brokers will help you through every stage of the loan process. Contact us today and let’s get started. 

FAQs

Does my SMSF need multiple members?

Your SMSF does not need multiple members if you manage it through a corporate trustee structure. If you go for an individual trustee structure, you will need at least one other related party, although they don’t necessarily need to be members of the fund.

Can I live in a property purchased by my SMSF?

Unfortunately, you cannot live in your SMSF property until you have reached the preservation age to access your super. Its initial purpose needs to be to grow your super.

Is it worth buying a house with super?

It can be! Property is usually a solid investment, especially in Australia. Whether you’re looking to grow your retirement fund, or whether you’re looking to get on the property ladder and start building equity, using your super can be a smart option. As always, get expert advice before diving in.