Leveraging your superannuation can be a strategic way to boost your property investment portfolio. Many Australians are now tapping into their super to purchase investment properties with good reason.
Here are the essential steps, benefits, and strategies to simplify the process.
1. Understanding the Home Super Saver Scheme
The Home Super Saver Scheme (FHSSS) is an Australian government initiative designed to help first-time homebuyers save for a deposit inside their super fund. This scheme allows individuals to make voluntary contributions to their super account and withdraw these savings to purchase their first home. The tax advantages of superannuation, combined with the discipline of automatic savings, make this an attractive option.
Key Points
You can contribute up to $15,000 annually and $30,000 in total under the scheme.
Withdrawals are taxed at your marginal tax rate, less a 30% offset.
Suitable for first-time homebuyers looking to accelerate their savings.
Expert Advice
Start Early: The earlier you make voluntary contributions, the more you can take advantage of compound interest. Even small, regular contributions can grow significantly over time.
Check out our First Home Buyers Guide to Sydney for more detailed insights into buying your first home.
2. Use a Self Managed Super Fund
Using your superannuation to buy an investment property can be a game-changer for your financial future. While the FHSSS is designed for first home buyers, those looking at investment properties can also benefit by setting up a Self-Managed Super Fund (SMSF). An SMSF gives you control over your super investments, including property.
Key Points
You need to establish an SMSF to invest directly in property.
Strict compliance and regulatory requirements must be met.
Property purchased through an SMSF must be for investment purposes, not personal use.
Expert Advice
Research SMSF Set-Up Costs: Setting up an SMSF can be costly, with fees for administration, auditing, and financial advice. Ensure you understand these costs before proceeding to sign a contract.
A local expert can be invaluable.
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3. Making Voluntary Contributions
Voluntary contributions are a crucial element in maximising the FHSSS. These contributions can significantly enhance your super balance after tax contributions, leading to a larger amount available for your house deposit.
Key Points:
Pre-tax (concessional) contributions include salary sacrifice and personal deductible contributions.
Post-tax (non-concessional) contributions are made from your after-tax income.
Keep track of your contribution limits to avoid excess contributions tax.
Expert Advice
Automate Contributions: Set up automatic transfers to your super fund. This ensures consistent contributions and reduces the temptation to spend money elsewhere.
How to Make Voluntary Contributions
Salary Sacrifice: Arrange with your employer to direct a portion of your pre-tax salary into your super fund. This reduces your taxable income while boosting your super balance.
Personal Contributions: Make additional contributions from your post-tax income. When you lodge your tax return, these can be claimed as a tax deduction.
Spouse Contributions: Your spouse can also contribute to your super fund, which may provide additional tax benefits.
Understanding the mechanisms and benefits of voluntary contributions can significantly enhance your savings strategy this financial year.
4. SMSF and Borrowing
When using an SMSF to purchase an investment property, you can borrow funds through a Limited Recourse Borrowing Arrangement (LRBA). This allows your SMSF to buy property without the risk of other assets in the fund being called upon if the loan defaults.
Key Points
LRBAs involve complex legal and financial arrangements.
Seek professional advice to ensure compliance with super laws.
SMSF loans generally require a higher deposit and incur higher costs than regular home loans.
Expert Advice
Choose Lenders Carefully: Not all lenders offer SMSF loans. Look for those with competitive rates and terms tailored for SMSFs.
Steps to Borrow with SMSF
Set Up Your SMSF: Establish and ensure it complies with all regulatory requirements.
Develop an Investment Strategy: Outline your SMSF’s investment objectives and strategy, including the purchase of property.
Engage a Mortgage Broker A mortgage broker with experience in SMSF lending can help you find suitable loan products.
Borrowing through an SMSF can be complex, but with the right guidance, it can be a powerful tool for property investment.
5. Choosing the Right Property
Consider location, potential rental yield, property market, and long-term growth prospects.
Key Points
Conduct thorough research and due diligence.
Engage a property advisor or real estate expert.
Focus on properties that align with your investment strategy and SMSF rules.
Expert Advice
Focus on High-Growth Areas: Look for properties in suburbs with solid infrastructure development and amenities. These areas typically offer better long-term growth.
Tips for Choosing the Right Property:
Location: Choose areas with solid growth potential and high rental demand.
Property Type: Based on your SMSF’s investment strategy, decide whether you want to invest in residential or commercial property.
Market Trends: Stay informed about market trends and future developments in your chosen area.
Consider hiring a buyer’s agent for personalised assistance. If you’re looking to invest in Sydney, our guide to the Best Buyers Agents can help you find the right professional.
6. Understanding Tax Implications
The contributions to your super and the withdrawals under the FHSSS have specific tax treatments that can impact your overall tax liability.
Key Points
Concessional contributions are taxed at 15%.
Withdrawals under the FHSSS are taxed at your marginal rate minus a 30% offset.
Rental income and capital gains from property in an SMSF are taxed at 15% or 0% if in the pension phase.
Expert Advice
Track Your Contributions: Keep meticulous records of all your contributions to avoid exceeding caps and incurring extra taxes.
Tax Strategies
Concessional Contributions: Maximise your concessional contributions to take advantage of the lower tax rate.
Tax Offsets: Understand the tax offsets available when withdrawing funds under the FHSSS.
Capital Gains Tax (CGT): Plan your property investment strategy to minimise CGT. Properties held in an SMSF for more than 12 months are eligible for a CGT discount.
Tax implications can be complex, so seeking advice before tax contributions from a tax professional is highly recommended.
7. Compliance and Legal Requirements
Compliance with superannuation laws and regulations is vital when using your super for property investment. Non-compliance can result in severe penalties and tax consequences.
Key Points
Ensure your SMSF meets the sole purpose test – investing solely for retirement benefits.
Regularly review your SMSF compliance with a qualified SMSF auditor.
Stay updated on changes in superannuation laws and regulations.
Expert Advice
Regular Reviews: Regularly reviews your SMSF’s compliance to ensure all regulatory requirements are continually met.
Compliance Tips
Sole Purpose Test: Your SMSF must be maintained to provide retirement benefits to members.
Investment Strategy: Develop and review a clear investment strategy regularly to ensure it meets your SMSF’s objectives.
Audits: Conduct annual audits to ensure compliance with superannuation laws.
Engage a professional conveyancer to ensure all legal requirements are met before tax due.
8. The Role of Mortgage Brokers
A mortgage broker can be an invaluable ally when planning to use your super for a house deposit. They can help you navigate the complexities of SMSF borrowing, find suitable loan products, and ensure you get the best deal possible.
Key Points
Mortgage brokers can provide access to a wide range of lenders.
They can assist with the paperwork and compliance requirements.
Brokers often have insights into the best strategies for maximising your borrowing capacity.
Expert Advice
Use a Specialist Broker: Choose a broker who specialises in SMSF loans. They will be more familiar with the specific requirements and options available.
Benefits of Using a Mortgage Broker:
Expert Advice: Brokers can offer expert advice tailored to your financial situation and goals.
Access to Lenders: They have access to multiple lenders and can find the best loan product for your needs.
Time-Saving: Brokers handle the paperwork and application process, saving you time and effort.
For those in Melbourne, our guide to the Best Mortgage Brokers in Melbourne can help you find a trusted professional.
9. Seeking Professional Advice
Lastly, professional advice is crucial when considering using your super for residential property investment. Financial advisors, tax professionals, and superannuation specialists can provide tailored advice to ensure your strategy aligns with your financial goals and regulatory requirements.
Key Points
Consult a financial advisor to develop a comprehensive investment strategy.
Seek tax advice to understand the implications of your super contributions and withdrawals.
Regularly review your superannuation and property investment strategy with professionals.
Expert Advice
Multi-Disciplinary Team: Consider assembling a team of professionals, including a financial advisor, tax specialist, and SMSF expert, to cover all aspects of your investment strategy.
Types of Professional Advice
Financial Advisors: Help you develop a holistic financial plan, including superannuation and property investment strategies.
Tax Advisors: Provide guidance on the tax implications of your investment and ways to minimise your tax liability.
Superannuation Specialists: Offer expertise in SMSFÂ setup, compliance, and investment strategies.
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Want to Speak with an Expert Mortgage Broker?
If done correctly, using your super for a house deposit can be a smart move. Understanding the rules, benefits, and strategies allows you to maximise your retirement savings and achieve your investment property goals.
Ready to take the next step? Contact a mortgage broker today to explore your options and make your dream home a reality.
Click here to get in touch today.
Article references
Australian Taxation Office – First Home Super Saver Scheme: https://www.ato.gov.au/individuals/super/withdrawing-and-using-your-super/first-home-super-saver-scheme/
Australian Taxation Office – First Home Super Saver Scheme – technical changes: https://www.ato.gov.au/about-ato/new-legislation/in-detail/superannuation/first-home-super-saver-scheme-technical-changes
MoneySmart: Save for a House Deposit: https://moneysmart.gov.au/saving/save-for-a-house-deposit
Australian Securities and Investments Commission – MoneySmart: Self-Managed Super Funds: https://moneysmart.gov.au/how-super-works/self-managed-super-fund-smsf
SuperGuide – How to use super to buy your first home: https://www.superguide.com.au/how-super-works/first-home-super-saver-scheme-fhss
MANSOUR SOLTANI
Mansour has spent more than two decades involved in the purchase and sale of real estate, acquiring both investment and commercial properties throughout Australia, including in major cities and smaller regional locations.
He is the proprietor of a finance brokerage firm, overseeing a portfolio worth in excess of 75 million in loans and serving a diverse clientele across Australia and a regular contributor to money.com.au. This has equipped him with extensive knowledge in various investment tactics, allowing him to offer significant insight.
Super for House Deposit FAQs
No, you cannot use your SMSF to pay for a home deposit on a property that you intend to live in. SMSF property investments must be for the sole purpose of providing retirement benefits to members.
Yes, your SMSF can be used to purchase investment property, provided the property complies with SMSF rules, including the sole purpose test and investment strategy requirements.
The sole purpose test ensures that your SMSF is maintained for the sole purpose of providing retirement benefits to its members. Any property purchased must be solely for investment purposes.
Yes, you can purchase residential property through your SMSF, but it must be for investment purposes only. You cannot live in it or rent it to family members.
An LRBA allows your SMSF to borrow money to purchase an asset, with the lender’s recourse limited to the asset itself. This means the lender can only claim the property and no other SMSF assets if there is a default.
Yes, your SMSF can borrow money through an LRBA to purchase an investment property.
No, the property being purchased must be the sole security for the loan under an LRBA.
No, even after retirement, you cannot live in a property purchased by your SMSF. It must remain an investment property.
Income from rental properties in an SMSF is taxed at a concessional rate of 15%. If the property is held until the fund is in pension phase, the rental income and any capital gains may be tax-free.
Generally, you cannot transfer a residential property that you own into your SMSF, except in the case of business real property, which is subject to strict rules and conditions.
