Australians have just over $3.2 trillion in superannuation assets as at the end of June 2022. Now as housing affordability takes the focus for many of us, accessing specialised tools in the superannuation arena can assist buyers to get into the market without over committing themselves.
Super Deposit For Your First Home
Since July 2017 the First Home Super Saver Scheme (“FHSS”) has been available to first home buyers. According to Canstar eligible buyers can tax effectively contribute up to $15,000 per annum, to a maximum of $50,000. That amount, plus any earnings can later be withdrawn to fund the deposit on your first home.
According to Canstar, the outcome of the FHSS is between 7.9% and 11.0% (approximately) better than using a normal savings account over 1, 3 and 5 years). Couples can therefore use this scheme to tax effectively access $100,000 plus investment earnings, as a deposit towards their first home.
To be eligible for the scheme, buyers must:
- Be at least 18 years old;
- Have never owned property in Australia (including investment properties and vacant land);
- Not previously accessed the scheme;
- Purchase residential property; and
- Live in the property for at least 6 months after purchasing (or completing the build).
Super Property Investing
In most cases, your superannuation investments will include property as part of your portfolio. However, publicly available superannuation funds rarely have exposure to direct residential property. If you believe that residential property should be a greater part of your superannuation strategy, then there are options available that will help you achieve that. Once you have reached the available limits of portfolio allocation in your publicly available fund, you may need to switch to self-managed superannuation to get the property exposure you desire.
You will be required to get advice from a licenced professional adviser, as there are many regulatory requirements, increased costs and heightened risks to your retirement savings. ASIC suggests those risk factors will include:
- Higher costs
- Cash-flow demands
- Difficulty if you decide to exit property
- Potential tax losses trapped in the fund
- No alterations are permitted to the property
Some advisers suggest that the benefits include:
- Concessional taxation
- Investment choice
- Consolidation of superannuation assets
Self-managed superannuation funds are not permitted to borrow money, with the exception of Limited Recourse Borrowing Arrangements (“LRBA”) that are prescribed in legislation. If you can meet the requirements, these arrangements will allow your superannuation fund to gear the property investment with third party financing. These strict rules will require professional valuations (see our post on valuers) and advice from taxation and finance professionals.
Once you have received appropriate advice, consolidated your superannuation investments, and selected a property; you can utilise a significant portion of your superannuation savings to conduct the property investment