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How to use SUPER to buy property in Australia

How to use SUPER to buy property in Australia

Are you looking to buy property in Australia? But then you see all these ads and wonder if you can use your super fund money to buy a home. The answer is complicated. Currently, in Australia, you cannot legally use the money in your super fund to buy a home for yourself or your family.

Two ways you can use your superannuation to help you buy property:

  1. The government’s First Home Super Saver Scheme
  2. Transferring your super to a Self-Managed Super Fund (SMSF)

The First Home Super Saver Scheme allows first home buyers to use their super fund as a supercharged bank account to save for a home deposit. The government provides tax benefits, and after a few years, you can take out the money you saved to buy your first home.

Using an SMSF to buy property is another option, but there are strict rules around it. The property will be owned by the SMSF and must be used as a legitimate investment to generate income for your retirement. It’s important to understand the regulations and seek professional advice before taking any action.

While SMSF property investing can be beneficial for some, it may not be a good idea for most Australians due to the higher deposit and liquidity requirements. It’s essential to consider the property’s cost, rental income, and proximity to retirement before making a decision.

Using a Self-Managed Super Fund (SMSF) to invest in property may not be the best option for most Australians.

There are several reasons why:

  1. Younger Australians may not have enough superannuation funds to afford properties in major cities.
  2. Investing in property locks up a large portion of your superannuation into a single asset, which goes against the principle of diversification.
  3. If the property does not experience sufficient capital growth, you may end up worse off compared to investing through an APRA fund.
  4. Investing in property through an SMSF does not allow you to offset investment losses against your personal income for tax reduction purposes.
  5. The tax benefits of negative gearing are smaller when investing through an SMSF compared to investing in your own name.
  6. Operating an SMSF requires both time and money for research, accounting, record-keeping, and audits.
  7. Buying property through an SMSF is less flexible than buying it in your own name.

However, there is one exception where using an SMSF to buy property makes sense: if you run a small business. In this case, you can buy a commercial property with your SMSF and operate your business from that property.

Self-Managed Super Fund (SMSF) has several advantages:

  • The rent you pay to your SMSF helps pay off the loan, allowing you to eventually own the property through your SMSF.
  • Paying rent to your SMSF allows you to claim a deduction for rental expenses and save money based on your marginal tax rate.
  • Once the loan is paid off, all the rent you pay goes towards your retirement savings, while continuing to save on tax.
  • This investment structure provides increased asset protection and secures the tenancy of your business in the long term.

Commercial property is a preferred strategy for investing in property using superannuation. However, it is important to understand the expenses you can claim for your property to maximize tax savings.