Time to read : 5 Minutes
Tapping into your super to purchase a property is rather complicated… but it’s not entirely impossible. The way you access your super to buy a property will depend on whether you are:
a first time home buyer wanting to live in it
buying an investment property
65 or approaching retirement age.
But it’s also worth asking if it’s a good idea to dive into your nest egg to fund a property purchase.
So let’s break this down for you.
I’m a first time home buyer. Can I use my super?
Yes. The government’s first home super saver scheme (FHSS) allows first time home buyers to save for a deposit for a new or existing home.
Be aware: one of the key requirements is that you must move into the property and live in it for at least 6 months within the first 12 months. In other words, this option is not suitable if you’re wanting to buy a property as an investment.
So… how does it work?
You make voluntary payments into your super with the goal of saving for a deposit to buy your first home.
The contributions you make can be before-tax (concessional) or after-tax (non-concessional).
If you meet the eligibility criteria, you can access a maximum of $15,000 of your contributions from any one financial year – a total of $50,000 across all years.
One way to get started on this scheme is to talk to your employer about salary sacrifice options for making voluntary contributions – that’s the before tax option.
When you’re ready to buy your property and would like the FHSS amounts to be released, you’ll need to apply to the ATO and go from there.
Important considerations:
Check eligibility criteria to ensure you qualify.
Confirm with your super fund they will release the funds (but there’s no need to let the ATO know before you start).
When FHSS amounts are released there’ll be tax implications for the year you make the release request. You’ll receive a payment summary and will need to include the assessable and tax-withheld amounts in your tax return.
Tip: when it comes to getting your finance sorted, a mortgage broker can help you navigate the scheme. They can provide you with guidance, assess if you’re eligible for the scheme, assist with the application process, and find a loan that aligns with your FHSS goals.
I want to buy an investment property. Can I use my super?
As long as the property will only be purchased as an investment, you can use your super but you need to have a self-managed super fund (SMSF).
The fund can have up to four members (including yourself) and you all have a say as to how the super is invested – such as agreeing to buy an investment property. But you can’t use the full super balance to buy the property.
Borrowing money to buy an investment property through an SMSF is known as a limited recourse borrowing arrangement (LRBA).
The property would be placed in a separate trust outside of the SMSF structure. Income and expenses of the property go via the super fund’s bank account and the fund is obliged to meet loan repayments.
But because the property is placed in a separate trust, if the fund defaults on loan repayments, the other assets are protected… in other words, there’s a ‘limited recourse’.
Be aware: setting up an SMSF is a lengthy process and there are lots of rules and responsibilities with hefty fines if you don’t meet your obligations.
And if you’re thinking you’d like to buy a holiday home with the intention of renting it from time to time, it’s not allowed. All trustees including anyone related to the trustees are not permitted to rent the investment property.
When can I have full access to my super to buy a property?
Depending on your age and how long you plan to work, it may take quite some time.
When you turn 65, you can get full access to your super even if you’re still working, otherwise…
When you permanently retire and have reached your ‘preservation age’ you can withdraw your super. For anyone born after 30 June 1964, the preservation age is 60.
You can also open up a transition to retirement account when you reach your preservation age which allows you to take out some of your super while still working.
Be aware: if you're under 60 and have no intentions to continue working, you may be required to pay tax on the super you withdraw.
And if you’re planning to use your super as a deposit for a property, keep in mind that it could be more difficult to get approval for a loan once you’ve retired.
Is it a good idea to use my super to buy a property?
This is something we’d absolutely recommend speaking to a financial professional about. They’ll help you look at the long-term implications of raiding your super to buy a house.
Using your super to fund a property purchase today may seem appealing but you’ll need to balance this against what it will do to your retirement. Living in the perfect forever home might not be quite so enjoyable if you have no spare cash to enjoy your retirement.
Bottom line
Yes, there are ways to tap into your super to buy a property... but:
It can be a complicated process.
It’s a very good idea to speak to a financial advisor before using your retirement money.
It could mean you have less money to live on when you eventually retire.
Everybody’s different, so get some good advice before you make a decision.
Go deeper:
Financial disclaimer
The information contained on this web page is of general nature only and has been prepared without taking into consideration your objectives, needs and financial situation. You should check with a financial professional before making any decisions. Any opinions expressed within an article are those of the author and do not specifically reflect the views of Compare Club Australia Pty Ltd.
