Can I Use My Super To Buy a House: A 2022 Detailed Guide

Can I use my super to buy a house

Aside from ensuring a comfortable retirement, you can also tap into your super account and use the money to buy your first home. 

However, it’s not as simple as withdrawing funds from your super and making a deposit. 

Read on as we answer all your burning questions, from ‘Can I use my super to buy a house and under what conditions?’ to ‘How much can I take out of my super to buy a property?’.

Can I Use My Super For A House Deposit?

There are strict regulations on when you can release funds from your super and making a deposit on a home or buying a property is not one of them. 

However, there are exceptions to the rule. If you’re a first-time homebuyer, you have access to certain tax benefits under the First Home Super Saver Scheme. You could also use your self-managed super fund to purchase an investment property.

How to Buy a House Using Your Superannuation: The First Home Super Saver Scheme Explained

The scheme, first introduced in 2017, allows you to withdraw up to a capped amount of $30,000 from the voluntary contributions you have made.

Note: At the moment, the maximum amount you can access through the scheme is $30,000, but this will increase to $50,000, as of 1 July 2022.  

Through the FHSS scheme, individuals can contribute up to $15,000 per year, saving $30,000 in total. 

Additionally, if a couple is planning on buying a home together, they can access up to $60,000 per year. Since eligibility is calculated individually, a couple can actually access up to $30,000 each from their super to buy the same house. 

Note: As of July 2022, the maximum couples can withdraw from their individual super accounts will go up to $100k. 

Do Aussies have $50,000 to withdraw from their super? Here is how much the average Australian has in their super account.

Who Is Eligible for the FHSS Scheme?

When it comes to how to use super to buy property, there are several requirements for a person to become eligible for the scheme. They include the following: 

  1. You need to be an adult (18 or older);
  2. You need to be a first-time property owner in Australia (excluding property granted in cases of severe financial hardship);
  3. You haven’t had access to your FHSS fund in the past.

Aside from these basic requirements, there are several other conditions that need to be met.

  1. You must have an intention of living on the premises, at least for the first 6 months from the moment it becomes possible to do so;
  2. Once you withdraw the money, you must sign a home contract within 12 months to avoid additional 20% taxation;
  3. You must build residential property, not a motorhome, houseboat or any land on which you can’t have a house;
  4. The funds must be invested in the building contract itself, in the case of building a house on a vacant property.

Eligible Contributions 

What types of contributions to your superannuation account can you withdraw with the FHSS scheme?

  • Before-tax contributions. These include personal contributions that you can claim a tax deduction for or salary sacrifice contributions (which are taxed at a much lower rate of 15% as opposed to contributions taxed outside of super, i.e. 48.5%);
  • After-tax contributions. These are voluntary contributions that don’t require additional tax deductions. 

Ineligible contributions

Contributions that cannot be withdrawn for the purchase of a home under the FHSS include: 

  • Spouse contributions
  • Employer contributions
  • Superannuation guarantee amounts

Withdrawing super for a house deposit: How much can you take?

While you may withdraw 100% of your after-tax (non-concessional) contributions and 85% of your before-tax (concessional) contributions, it should be noted that the annual limit of $30,000 can’t be exceeded. 

If you meet all criteria and you have found a home, you need to apply to the ATO and request the release of your FHSS savings. It’s best to do this when you apply for your mortgage so that you have the deposit ready to go. 

For tips and tricks on how to save on home loan, read through this informative guide

The Benefits of the First Home Super Saver Scheme 

There are several pros to using your super to buy a house. Here are some of them:

  • Lowered tax rates on funds individuals with an income not exceeding $250,000 each year will be taxed at only 15% on their contributions;

For more ways to save on tax, check out this article.

  • Higher rate of return on invested money – saving the money in your super has higher returns than the interest rates you would get from banks;
  • Possibility for couples to double the benefit obtained through this scheme;
  • If you decide not to use your super to buy a house, after all, your money stays in your account contributing to a more comfortable retirement.

Did you know that 30% of retired male Aussies and 17% of women rely on super as the sole source of income during retirement?

There are some drawbacks, as well.

  • You only get one chance to withdraw the money from your super. This is not a checking account or a line of credit that you can use whenever you want. 
  • You might have to pay 15% tax on some of the before-tax contributions if you earn more than $250,000 per year.

Buying a House Through SMSF

Individuals with self-managed super funds (SMSF) can buy a house with super, but they can only use it for investment purposes. 

Living in the home you purchased is not permitted before meeting the legal requirements for accessing your super. This is because super is intended to support your retirement plan, not help you make purchases beforehand.

Moreover, if the fund is owned by more than one member, they can invest and buy property together. The parties involved can be relatives, business partners, companies or trusts controlled by both members.

There are rules that must be followed when using super to buy a house:

  • The property must meet the “sole purpose test”, that is, be used as a benefit to a retirement plan;
  • The property can be rented to parties other than those who are members of the fund or related to them;
  • The members of the fund (their relatives included) may not live on the property as long as it’s owned by the SMSF;
  • The property can be transferred from the SMSF to the members of the fund only upon retirement.

Despite limitations to using your self-managed super fund to buy a house, it is still a good option to consider, given the latest boom in the housing market and rising prices. However, you should carefully weigh out the pros and cons, and talk to a financial expert before taking this step. 

When Can You Access Your Super?

The primary aim of the super fund is to ensure that you are financially secure once you retire; hence you cannot access it before the preservation age

Nevertheless, there are certain life circumstances that allow for exceptions to this rule. They include: 

  • You are experiencing financial hardships
  • You have less than $200 in your super
  • You are temporarily or permanently incapacitated or have a terminal medical condition
  • You are a temporary resident who is leaving Australia

What if you are close to retirement age?

Once you have reached the preservation age of 55 or 56 (depending on when you were born), you may be eligible to access your superannuation. 

Those born before 1 July 1960, have already reached your preservation age of 55 years, while for those born from 1 July 1960 to June 1961, the preservation age was reached at 56.

Currently, there are three options you can consider if you belong to this age group and want to use your super to make a deposit on a house:

  1. Choose to retire at the age of 55 and withdraw money from your super account, but keep in mind that you will have to pay taxes on every withdrawal until you reach 60;
  2. Upon turning 65, you will be able to access all of your savings even if you haven’t retired;
  3. Continue working while accessing 4% or 10% of your pension fund per year through a “transition to retirement” program.

What Are the Alternatives to Using Super to Buy a House?

If you find yourself unable to use your super for a deposit on a house, consider trying some of these options:

  • Look into deposit bonds and their benefits;
  • If your parents are property owners, they can help you by guaranteeing a part of your deposit;
  • You can look into a new first home loan deposit scheme through which the government guarantees 15% off your deposit.

Bottom Line

If you are a first-time homebuyer or want to invest in property, your super can help. Keep in mind though that despite tax benefits there are some risks involved, the main one being that you are reducing your income during retirement. 

Think long and hard before you buy a house with your super and look at alternative financing options first. 

FAQs:

1. Is it a good idea to use super to buy a house?

It’s a good idea, especially through the FHSS scheme, which has many benefits, such as lower tax rates and higher rates of return on invested money. Nevertheless, you do have to meet certain requirements.

2. How much super do I need to buy an investment property via an SMSF?

The recommended amount is around $200,000.

3. Can I use my super to buy an investment property?

Australians can use their SMSF to buy an investment property, but they can’t live on it until they obtain legal access to their superannuation.

4. Can I use my super to buy a house if I already own property?

The conditions for the FHSS state that you can’t be a property owner in Australia if you want to use your super to buy a house.

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