Are you wondering if you can use your super to buy a car?

Most standard superannuation funds have a limited investment menu.

These options usually include managed funds, term deposits and possibly ASX-listed shares.

A self managed superannuation fund (SMSF) provides much greater flexibility in relation to investment options.

However, SMSF investments need to remain within the permissions of superannuation legislation, regulations, the SMSF Trust Deed and the SMSF Investment Strategy.

SMSFs trustees can invest in assets such as direct real property, physical commodities (such as gold, silver, etc) and even artworks.

It is important to remember that investments must always be made for the benefit of the member/s.

In other words, an asset should be invested in for the purposes of producing an investment return for the member to help achieve their retirement needs.
 

Can You Use Your Super To Buy A Car?

 
You can use your super to buy a car. However, the purchase of the car must be for the benefit of members and cannot prove a present day benefit.

Specifically, the Superannuation Industry (Supervision) Regulations 1994 outline the rules of an SMSF purchasing collectables and personal use assets, such as a car.

The rules around using your super to buy a car are outlined in Regulation 13.18AA – Investment in collectables and personal use assets.

If you do not have a SMSF, you will be limited to the investment options provided by your superannuation provider, which will not include the option of buying a car.

If you have a SMSF, you will not only be a member of the SMSF, but you will also be the trustee of the SMSF.

The trustee of a superannuation fund decides on the investments available to members, within the constraints of super legislation and regulations.

It is imperative a trustee of a SMSF is aware of their responsibilities associated with being a trustee.

Reading the Introduction for SMSF Trustees – running a SMSF published by the ATO is a good starting point in understanding your responsibilities.

A trustee of a SMSF will outline the permitted investments within the SMSF Investment Strategy.

A vintage car, for example, could be part of the permitted investments within the SMSF.

A vintage car falls within the definition of a collectable and personal use asset.

Like all investments of a SMSF, the asset must not provide a present day benefit.

In relation to buying a car, the car cannot be driven by, or put on display for the benefit of, a member of the SMSF, a trustee of the SMSF, or any related party of the SMSF.

If you use your super to buy a car that is owned by your super fund, the car cannot be stored at the primary residence of a member or trustee of the SMSF, or a related party.

In no circumstances can the car be driven by a related party of the SMSF.

A Related Party is defined in Section 10 of the Superannuation Industry (Supervision) Act 1993.

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There are also further requirements when buying a car with your super.

These requirements relate to leasing, insurance and selling the car.

The car can only be leased to an unrelated party of the SMSF under an arm’s-length arrangement.

Within seven days of acquiring a car for investment within super, the car must be insured under the name of the SMSF.

When the car owned within in super is sold, it must be sold at market price as determined by an independent valuer.

A collectable or personal use asset can be sold to a related party of a SMSF.
 

Risk Of Using Super To Buy A Car

 
If you, in your capacity as trustee of a SMSF, have decided to invest in a car, you need to be aware of the risks.

Some of the risks of using super to buy a car include, but are not limited to:

Liquidity – buying a car within super reduces access to cash that can be used to assist with the general running cots of the SMSF, or even to cover cash flow obligations, such as pension payments.

It may also be difficult to sell a car to free up these funds.

What would happen if a member of the SMSF passed-away and their benefits needed to be paid out of the SMSF?

How would the death benefit be funded if the car couldn’t be sold?

Cash flow – Owning a car within super might require ongoing costs, such as storage, insurance, maintenance, etc.

The SMSF will need to ensure that it has adequate inflows to cover these costs, as well as other costs of running the SMSF.

Investment Returns – no investment returns are guaranteed. How likely is it that the car purchased will produce returns in line with expectations?

If the car does not produce returns in line with expectations, such as increase on value or leasing rate; how will that affect the ability of members to achieve their retirement objectives?
 

Can You Use Your Super To Buy A Car To Drive?

 
The only way to use your super to buy a car to drive is by first withdrawing your super into your personal bank account.

In order to do this, you need to have first met a superannuation condition of release.

An example of a superannuation condition of release includes meeting the superannuation definition of retirement or attaining age 65.

This would allow you to access your super and use your super to buy a car.

You can also start a transition to retirement income stream (TRIS) while you are still working once you have reached your superannuation preservation age.

A TRIS gives you the ability to withdraw between 4% and 10% of your TRIS balance each financial year.

This may provide you with adequate funds to use your super to buy a car.

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In all instances, when using your super to buy a car to drive, you super must first be withdrawn from your account into your personal bank account, before the car is purchased.

Under no circumstance can you use your super to buy a car to drive by purchasing the car within super, whereby your super fund is the owner of the car.

When making withdrawals from super, you always need to consider the tax implications.

The tax on super withdrawals are determined by your age and the tax components that make up your balance.

In relation to tax components, the tax-free element will always be received tax-free regardless of age.

Tax on the taxable element differs depending on whether you are under or over age 60.
 

Using Super To Pay Off Debt

 
Similar to purchasing a car to drive, or buying a house to live in, you can only use your super to pay off personal debt if you first withdraw it from super.

To withdraw your savings from super, you need to meet a superannuation condition of release.

Once savings are withdrawn from super, it is up to you how the savings are used.

You can use the withdrawal amount to pay off debt, start a business, buy a car for personal use or even buy a house to live in.

Chris Strano

Chris Strano created SuperGuy to help the average punter navigate through the complex and ever-changing super rules. It has since become one of Australia's leading digital super resources. Subscribe to SuperGuy's YouTube channel for the latest strategies to boost your super savings. https://www.youtube.com/channel/UCs1ARI2y18hrjNYVqjtJ-pQ

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