Time to read: 4 mins
With many potential homeowners looking at creative ways to save a deposit and buy their first home, it’s no wonder people are looking to their biggest nest egg for a head start – superannuation.
There are two ways you can utilise your super to purchase a property in Australia – one is designed for first homeowners, and the other is to build your investment portfolio and branch your retirement funds into bricks and mortar.
Your superannuation is designed to be the nest egg for your retirement, with a focus on saving and increasing it during your working years rather than spending it.
There are regulations around when and if you can access the funds in your super, with some special circumstances allowing early withdrawals such as serious illness or disability, extreme financial hardship.
While it is possible to access your super to purchase property, you should also speak to your financial advisor about the tax advantages of using your own money, as well as any extra fees or taxes you will need to budget for.
It is also important to note that only those with a Self Managed Super Fund (SMSF) can purchase property, and setting up a SMSF is a highly regulated process that requires a strong strategy and funds to be spread across a number of investment types.
Using Super to Purchase an Investment Property
As superannuation is your investment fund for a comfortable retirement, those with a SMSF are able to purchase an investment property as part of their portfolio.
The fund can obtain a loan for the property and use available funds in your account as the deposit. While some investments are purchased as negative geared properties, this strategy is not recommended when accessing your super as the tax breaks do not apply, and the idea is for it to contribute more to your super, not take away.
The restrictions on borrowing through your SMSF are strict, and it is not a simple process. It is also important to remember that you are not able to use all of your superannuation in order to buy an investment property, as there must be diversity in how your money is invested.
Using Super to Buy Your First Home
Saving a deposit for your first home can be a struggle, which is why the federal government announced a new scheme to help first home buyers save a deposit using their super.
Since July 2018 first home owners can access up to $30,000 of voluntary super contributions to use towards their deposit as part of the First Home Super Saver Scheme. To do so you need to be making voluntary contributions to your super, and comes with its own set of pros and cons.
The positives are you can save faster, and your contributions are taxed at a lower rate than your income – so you get to keep more of your money.
On the flipside, it is not an easy process and takes time to access the funds so planning is key when you are ready to make an offer on a home.
You will need to request access to your funds from the Australian Taxation Office with a detailed report on your earnings before making an offer, and it can take more than a month for the money to become available.
Should you be purchasing a property with your partner, and you are both first homeowners, you can both access $30,000 provided you have made that amount in voluntary contributions.
Superannuation is designed to set you up for a strong financial future, and this should always be considered whenever you are looking to access those funds to work a little harder for you.