Can I Use My Super To Buy A House To Live In 2020

Can I use my superannuation to buy a house to live in?

This is question asked by many Australians time and time again.

We’re often told that superannuation is our money, so we should be able to use it how we please, shouldn’t we?

Housing affordability in 2020 makes it difficult to enter the property market. But with superannuation savings ever-increasing, surely this would be the most logical way to get a foot in the door.

However, despite superannuation being your money, there are certain rules around accessing your super, which may prevent you from using your superannuation to buy a house to live in.
 

Can I Use My Superannuation To Buy A House To Live In?

 
You may be able to use your superannuation to buy a house to live, but certain conditions must be met first.

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Generally, in order to use you super to buy a house, you must meet a full superannuation condition of release.

The most common conditions of release are ‘retirement‘ or reaching age 65.

Retirement is defined as retiring after reaching your preservation age with no intention of returning to work, or having an employment condition come to an end after age 60.

If you have met the definition of retirement or attained age 65, you will have full unrestricted access to your superannuation savings.

However, in order to use these superannuation savings to buy a house to live in, you would first need to withdrawal from super the amount you require to buy the house and direct the withdrawal to your personal bank account.

This amount could then be used towards the purchase of a house to live in.

Just make sure you understand any potential tax implications of making a withdrawal from super.

In no circumstance are you able to buy a house to live in while the money is still within your super account.
 

Can I Use a SMSF To Buy A House To Live In?

 
You may have heard about people using their superannuation to buy a house or other property within a self managed superannuation fund (SMSF).

While this is possible in some circumstances, it must be for investment purposes only under an arm’s-length arrangement.

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A house or property owned within the superannuation environment cannot be used for your own personal lifestyle needs.

In short (and in general), if you have not yet reached your superannuation preservation age, you cannot use your superannuation to buy a house to live in.

If you have reached your superannuation preservation age, you may be able to use your superannuation to buy a house to live in, but you will need to withdraw it from your super account first and understand any tax consequences of doing so.

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Can I Use My Super For A House Deposit?

 
As mentioned above, if you have met a superannuation condition of release and able to access some or all of your retirement savings from super, then you can withdraw what you need to cover the cost of a house deposit.

However, the amount must first be removed from your super account into your personal bank account, then be used for a house deposit.

Read more, below, about the First Home Super Saver scheme.
 

Can I Use My Super To Buy An Investment Property?

 
Standard retail, corporate and industry superannuation accounts have unique ‘investment menus’ specific to the super fund.

The investment menu is generally made up of managed funds, multi-mix investment options, and maybe even access to ASX-listed shares.

These types of superannuation accounts do not provide sufficient scope for you to use your super to buy an investment property.

You can, however, use your super to buy an investment property if you have a self managed superannuation fund (SMSF) or were to rollover your existing super savings to a SMSF.

A SMSF is a structure whereby you are not only a member of the super fund, but also the trustee of the super fund.

It is important to note that running a SMSF comes with a high degree of responsibility, as you are legally required to to meet all legislative, regulatory, accounting and administrative obligations associated with being a trustee of a SMSF.

They costs associated with a SMSF can also be much higher than an ordinary superannuation account.

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In saying this, many SMSF trustees will engage the services of professional accountants and/or financial advisers to assist with maintaining a SMSF in a compliant manner.

An investment property owned within a SMSF must be owned for the benefit of members and consistent with the SMSF Investment Strategy.

Transactions must be done at arm’s-length and the investment property cannot be used for personal purposes (e.g. intermittently used as a holiday home).

All rent received from an investment property owned within a SMSF must be paid into the SMSF’s bank account and all expenses relating to the investment property must come from the SMSF’s bank account.
 

Can I Use My Super To Buy My First Home?

 
Again, you are unable to purchase a home within your super to live in and you can only use your superannuation to buy your first home if you have met a superannuation condition of release – by withdrawing your savings from super and purchasing your first home in your own name.

So, generally, no, you cannot use your super to buy your first home.

However, the FHSS scheme can help you save a deposit for your first home.
 

First Home Super Saver Scheme

 
The First Home Super Saver Scheme (FHSS), designed to improve housing affordability, is a way that you can save money for your first home within your superannuation account.

This is done by making voluntary concessional (pre-tax) or non-concessional (post-tax) contributions into super to save for your first home.

Some examples of voluntary super contributions include salary sacrifice contributions, personal concessional contributions (e.g. self-employed) or simply making personal non-concessional contributions from your bank account.

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You can then apply to access these voluntary contributions, plus an earnings, to help you purchase your first home.

The amount that you can access is limited to $15,000 of voluntary contributions from any one year and $30,000 across all years, plus earnings.

The FHSS release can only be applied for once. You must also live in the home you are buying as soon as practicable and stay in there for at least six of the initial 12 months that it is owned by you.

Further, you cannot have previously owned a property in Australia (including an investment property, land, etc.)

It is important to note that you must be 18 years of age to request a release of voluntary contributions under the FHSS scheme.
 

Benefit of the FHSS Scheme

 
The advantages of the First Home Super Saver scheme is that all earnings on your voluntary super contributions are taxed at a maximum of 15%, which can be lower than your individual tax rate.

Additionally, for voluntary concessional contributions, such as salary sacrifice or personal concessional contributions, the amount contributed is effectively made with pre-tax dollars, meaning that no income tax is paid on the amount contributed to super.

This potentially allows you to reach your first home deposit sooner.

Keep in mind that all concessional contributions to super do get taxed at a rate of 15% (yet effectively lower for low-income earners and higher for high income earners).

The disadvantages of the FHSS scheme is that the voluntary contributions must be used for the purchase of your first home, or remain in super for eventual retirement.

Therefore, if you decide to change your mind and not purchase a first home, you will be unable to access these voluntary contributions until you meet a different superannuation condition of release, such as retirement after your preservation age, or reaching age 65.

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. If you’re looking for more personalised advice, have a chat with one of our experts at www.superguy.com.au/need-advice

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22 Comments

  1. Russell Maguire

    My wife has reached retirement age at 66.5 years and has full access to her super.
    We are considering buying an investment property .
    (We own our primary residence .)
    Using part of her super as a deposit of 20%
    Is this a good idea or should we not touch super .?

    Reply
    • Chris Strano

      Hi Russel,
      Unfortunately I am not authorised to provide personal advice. You should consult a financial planner for personal advice.
      The benefit of super is that all earnings in an accumulation account are taxed at a maximum of 15%.
      If super is converted to an account based pension, all earnings are received tax free.
      Earnings received in your personal name are taxed at your marginal tax rates, together will all other personal taxable income.
      By earnings, I am referring to investment income and capital gains.
      To do some preliminary calculations, you may want to calculate the estimated returns you will receive in super and then deduct any expenses and tax payable.
      Then compare this with the estimated returns an investment property would generate, minus any costs and taxes.

      Reply
  2. Lunar Mustafa

    Hi
    Im renting a house.
    I have $125,000 in the bank.
    I’m 50 and i can’t work any more because of on going back issues.
    I have only $50,000 in my superannuation.
    Im planning on buying a house 3 ways with 2 other investors and only i get to live in the house with my 3 kids.
    Im very lucky to have this opportunity to put a roof over my head for a small share.
    But My problem is i need $165,000 in total for my share of the house.
    Can i take out my $40,000 from my superannuation to purchase this house?
    I have no other lending option.
    I cant get a bank loan cause i cant work any more.
    And this is my ONLY opportunity in life to owning a house.
    Can i pull out of my superannuation for this?
    Or what other choices do i have?

    Reply
  3. Gabriel Hernanez

    I am 50 years old, recently I purchased vacant land in Burnie Tasmania with my SMSF, the land falls under rural zone can I build a house there to live in it? Kind regards,

    Reply
    • Chris Strano

      Hi Gabriel, you are unable to live in a house owned by a SMSF.

      Reply
      • Robert Gard

        Chris, what if you buy a property under a SMSF and subsequently reach retirement age? Can you then live in the property!

        Reply
        • Chris Strano

          Hi Robert, a related party of a SMSF (which includes a member, trustee, or relative of these) is unable to live in a property owned by a SMSF, regardless of age or employment status.

          Reply
  4. Melanie Brownlie

    Can my mother draw out money from their super to gift to me to buy a house if they
    1. Reach preservation age
    2. Retire
    My mum would be living there to.

    Reply
    • Chris Strano

      Hi Melanie,
      If your mother has reached her superannuation preservation age and met the definition of retirement, she should be able to access her super in full. However, she will need to mindful of potential tax on withdrawals, particularly if she is under age 60. Your mother is able to gift money to you; however, it may be considered excess gifting for up to 5 years for social security purposes. which could greatly impact any current or future social security entitlements. You also need to mindful of estate planning ramifications of this. For example, if you have siblings, etc. or if she has other people who may benefit from her estate upon her death. Your mother also needs to understand the legal remaifications of gifting and understand that the gift legally becomes your money to do with what you please and no longer hers. I would strongly suggest discussing this with other family members and a solicitor.
      Related Posts
      What Is My Preservation Age?
      Definition of Retirement for Superannuation Purposes
      How Much Can I Gift?

      Reply
  5. Brendan

    Hi, my wife and I are farmers on a 400 acre farm running beef.
    Due to the severe ongoing drought we would like to withdraw from our superannuation fund the total amount outstanding of our mortgage and pay it out.
    We are both 47 years old.
    The minimal money we currently earn needs to be directed at buying feed and supporting our business and personal expenses.
    We are under tremendous financial stress

    Reply
  6. paul wales

    Hi Chris,
    Our situation is as follows we have close to $300k in super we are both retired and currently renting paying $425.00 per week. I would like to know can we contribute $150k from our super and our son is prepared to borrow $250k towards a unit for us.
    I would prefer to leave $150k in super in account, or do you think best to draw all out and put towards property. We have $55k in bank and $40k in shares at the moment plus receive the age pension, generally what would be the best way to go about purchase am concerned how much tax we would pay on withdrawing super balance.

    Reply
    • Chris Strano

      Hi Paul,
      Thanks for your comment.
      Deciding which way to go can be difficult, as there are both financial and lifestyle factors to consider.
      To answer your question from a financial perspective, it will depend on how your super is invested, the fees you are paying, your respective ages and how much you intend on purchasing a unit for (including stamp duty, legals, etc.). There may also be ongoing body corporate costs, rates, etc. to consider. Your Centrelink status may also change from non-homeowner to homeowner, depending on the arrangement.
      From a lifestyle perspective, it needs to be understood what you are ultimately trying to achieve, what your other retirement goals are what will make you happy.
      I suggest booking a free consultation with us to discuss your options in more detail – click here if you are interested https://calendly.com/torowealth/60mincall?month=2020-01
      Regards,
      Chris

      Reply
  7. Bruce

    Hey there
    Iam currently going through separation at 57yrs old I’ve supported my partner for the past 27yrs & now I’ll need to remortgage the home to stay in home & pay her out. Can I use my super to do this ?
    Regards…

    Reply
  8. Jolyn Mascaluk

    I am a 77 yr old female. My husband (of 60yrs) is a recipient of a Gov. pension. I have a personal allocated pension fund ( in wholesale cash going nowhere) and we each receive a part Centrelink pension. We have young adult grandchildren now out of work due to covid 19. We see a bleak future for many young Australians. I wish to exit my super pension
    ($300,000 remaining) to purchase a larger house/ granny flat to provide shelter to family members in need. What are the penalties and will our Centrelink part pensions be impacted negatively or cancelled.? Our aim is only to help our family.

    Reply
    • Chris Strano

      Hi Jolyn, generally your principal residence is exempt from Centrelink assessment. Therefore, withdrawing your super which is an assessable asset and using it to purchase a home that will be your main residence should not impact your entitlements. It may actually improve them. However, you may want to look into making sure the withdrawal is classified as a commutation (not increased pension payment), in case you have a grandfathered pension. I suggest contacting a Centrelink officer and asking them what the outcome of your proposal would be.
      Chris
      Related Posts
      What is a grandfathered pension?
      Centrelink and Account Based Pensions
      Commutations and Centrelink
      Commute Pension Meaning

      Reply
    • Robyn

      I am going through a divorce and would like to stay in the family home with my three children I have also been through cancer and cannot work full time anymore can I access any of my super to pay the outstanding mortgage on the home

      Reply
  9. Sun coast guy

    Hi SuperGuy
    I have $280,000 in smsf
    Hoping to purchase a unit off plan with the intention of retiring into it in 15 years time.
    It will be rented and managed through my smsf during this period. Is this acceptable under the ato rules.

    Reply
    • Chris Strano

      Hi, thanks for your question.
      It is possible to purchase a property off the plan using your SMSF. However, the only way you will be able to retire in it is if you personally purchase the unit from your SMSF at retirement. You cannot live in the property while it is owned by the SMSF, even if you are retired, and you cannot transfer the property out into your name at retirement, unless it is purchased by you at market rates.
      Please keep in mind that off-the-plan property purchases made by an SMSF can be very risky and there are many warnings about this from financial professionals and the Government alike. Some risks include inflated returns by sales agents, many initial and ongoing costs (tax, stamp duty, SMSF fees, etc.), delays in completion, to name a few.
      If you use borrowings to make the purchase within the SMSF, then the risks and the costs are even greater, plus, there are more rules to follow.
      You should exercise extreme caution and ideally seek professional financial and legal advice prior to entering into such an agreement, particularly if you are using all of your SMSF balance to make the purchase.
      Regards,
      Chris

      Reply

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