If you're looking to buy property, there are two key ways you can leverage your superannuation. Whether you're a first-home buyer wanting to boost your deposit savings or considering property investment through your super, understanding the options available can help you plan more effectively.

The First Home Super Saver Scheme (FHSS) lets first-home buyers use their voluntary super contributions to save for a deposit faster, while a Self-Managed Super Fund (SMSF) allows you to invest in property. Both options come with tax benefits, offering a smart way to increase savings or invest in real estate.

To learn how you can use your super for property, schedule a complimentary consultation today.

Ways you can use your super to buy property

There are a few ways you can use your super to help buy property, but the rules are strict. You can’t simply withdraw your super unless you’ve reached the preservation age.

However, here are two main ways to use your super for property:

1. First Home Super Saver Scheme (FHSS)

If you’re a first home buyer, you can make voluntary super contributions through this scheme to save for a deposit. The benefit is that you can use pre-tax contributions to boost your savings faster.

If you're a first-home buyer, the First Home Super Saver (FHSS) scheme allows you to withdraw up to $50,000 of voluntary super contributions, plus any associated earnings. These funds can be used to purchase a new or existing home, but not for investment properties or vacant land (unless there is a contract in place to build).

Voluntary contributions are taxed at a concessional rate of 15%, rather than your marginal income tax rate, which can be as high as 45%. According to the Australian Taxation Office (ATO), you can apply to have up to $15,000 of personal super contributions from any single financial year

2. Self-Managed Super Fund (SMSF)

You can set up an SMSF to buy an investment property. This option allows you to use your super for commercial or residential property, but you must follow strict rules, such as not living in or using the property yourself.

If you have a Self-Managed Super Fund (SMSF), it can only be used to purchase an investment property, not a home for personal use. You can either buy the property outright using your superannuation funds or take out a loan through your SMSF to invest in real estate.

An SMSF is a private superannuation fund that you manage yourself, operating like a trust with between one and six members, as per the ATO. Each member must act as a trustee and has the authority to decide how the superannuation is invested, including purchasing property. According to the ATO, approximately 1.1 million Australians are members of an SMSF.

If you would like to learn more about setting up an SMSF, visit our service page here.

Both options come with tax benefits but also have specific regulations. It's important to get professional advice before using your super for property investment.

How the First Home Super Saver Scheme can help you save faster

The First Home Super Saver (FHSS) scheme allows first-home buyers to withdraw extra superannuation contributions to help purchase a property. By using the scheme, you can save for a deposit faster because certain super contributions are taxed at a concessional 15%, which is lower than your usual marginal tax rate.

Here's how the FHSS scheme works: You can make voluntary contributions (before-tax) and non-concessional (after-tax) contributions to your super fund, saving up to $15,000 per financial year and up to a total of $50,000. When you’re ready to buy a house, you can ask the Australian Taxation Office (ATO) to release these contributions along with deemed earnings based on a specific interest rate.

Although some tax is still taken from the savings, the overall tax rate is generally lower than if you had saved the money in a bank account, making the FHSS scheme a useful option for first-home buyers. You can start saving by setting up a salary sacrifice arrangement with your employer or by making personal after-tax contributions. When you’re ready to use your savings, you simply apply to the ATO for the release of your FHSS funds.

Who is eligible to use the First Home Super Saver Scheme?

You may be able to use the First Home Super Saver (FHSS) scheme if you meet the following criteria:

Age requirement

You must be 18 years or older when requesting to access your FHSS funds, although eligible contributions can be made before you turn 18.

First home buyer

You must be a first home buyer and have never owned any type of property in Australia, including investment property, vacant land, commercial property, or a company title interest in land. However, you may still be eligible if the government determines you’ve experienced financial hardship, even if you’ve previously owned property.

Living requirement

You need to live in the property for at least six months within 12 months of buying it or when it's practical for you to move in.

First-time applicant

You must not have previously applied for money to be released from the FHSS scheme.

Eligibility is assessed individually, meaning couples, siblings, or friends can each access their own eligible FHSS contributions to purchase the same property.

What are the benefits of the FHSS Scheme?

The First Home Super Saver (FHSS) scheme offers several advantages for first-home buyers:

Boosts savings

By allowing you to save the difference between your marginal tax rate and the 15% tax rate on super contributions, the scheme helps increase your savings faster. You also earn deemed interest on these contributions, further growing your deposit.

Reduces taxable income

If you make concessional contributions through salary sacrifice, it can reduce your taxable income, giving you additional tax savings while you build your deposit.

Per person benefit

The benefits apply per person, not per property, meaning that couples can each use the scheme and effectively double the savings for their property purchase.

FHSS tax considerations

The FHSS scheme offers tax advantages that make it attractive for first-home buyers:

Contributions into your super

Contributions made through salary sacrifice are taxed at a lower rate of 15%, instead of your usual marginal tax rate. This allows you to save more towards your deposit through superannuation.

Withdrawals from your super

When your FHSS savings are released, the Australian Taxation Office (ATO) withholds tax on the amount. The tax is calculated at your marginal tax rate, but with a 30% offset, reducing the total tax payable on the released funds.

Using your SMSF to invest in property

Australians can use their superannuation to buy an investment property, but it must be strictly for investment purposes. You cannot use super to purchase a home for personal use.

If you have a Self-Managed Super Fund (SMSF), which can have up to four members, you and the other members can decide how to invest the fund's money, including buying investment properties. However, the property must be used solely as an investment and cannot be lived in by any of the fund members.

Setting up an SMSF is a complex and highly regulated process. It’s important to seek professional advice to ensure you understand your responsibilities and set up the fund correctly.

What are the rules for SMSF property investments?

Any investment, including buying property through a Self-Managed Super Fund (SMSF), must follow the "arm's length" rule. This means the transaction must be made under normal commercial terms, without special deals or arrangements between the SMSF and its members or related parties.

Generally, Self Managed Super Funds cannot buy assets from or lend money to fund members or related parties, although some exceptions exist. Understanding the definition of "related parties" can be tricky, as it includes more than just relatives or other SMSF members.

Related parties can also include:

• Relatives of each SMSF member
• Business partners of each member
• The spouse or children of those business partners
• Any company controlled or influenced by the member or their associates
• Any trust controlled by the member or their associates

Employers who contribute to a member's superannuation are also considered related parties. Understanding these rules is critical to ensure your SMSF stays compliant.

Can you take out a home loan to buy property through a SMSF?

Yes, it’s possible to take out a mortgage to purchase a property through your SMSF, using part of your superannuation funds as a deposit. However, there are strict borrowing rules in place.

Typically, property purchases within an SMSF are done through a Limited Recourse Borrowing Arrangement (LRBA). This means the property is held in a 'bare trust,' which holds the legal title. The SMSF retains beneficial ownership and receives all rental income from the property.

Primary factors lenders will likely consider when evaluating your SMSF's capacity to borrow:

• Does your SMSF have a balance of at least $100,000 to $200,000? Many lenders may consider smaller loan amounts insufficient if your balance falls below this range.
• Will your SMSF maintain a ‘liquidity buffer’ of at least 10% of the investment property's value after the purchase (once all fees and charges are accounted for)? You’ll need sufficient cash flow to cover part of the loan repayments and ongoing costs such as rates and property management fees.
• Does your SMSF loan have a minimum Loan-to-Value Ratio (LVR) of 70-80%, meaning you have a 20-30% deposit? Most lenders are unlikely to approve higher LVRs for SMSF loans.
• Are you making annual contributions of at least $15,000 to your SMSF? Lenders will require regular contributions to ensure the loan can be serviced.

SMSF eligibility & tax considerations

The application process for an SMSF loan is more stringent than a traditional mortgage due to additional compliance requirements. It’s common to seek help from a mortgage broker or financial advisor to navigate the process.

When applying for an SMSF loan, you’ll typically need to provide the following documents:

• A certified copy of the SMSF Trust Deed
• A certified copy of the Custodian Trust Deed
• SMSF financial statements (e.g. accountant-prepared financial statements, 12 months of bank statements for the SMSF, rental estimates, etc.)
• A signed contract of sale for the property

Keep in mind, not all lenders offer SMSF non-recourse loans. It’s advisable to consult a mortgage broker, as major banks like Westpac and Commonwealth Bank no longer provide these products.

Sydney-Based SMSF Tax Accountants

At Causbrooks, our Sydney-based tax accountants are committed to making the process of lodging your SMSF tax return as smooth as possible. We understand the complexities involved in managing an SMSF and the importance of being compliant. For more detailed information on how we can assist with your SMSF tax returns, visit our SMSF Tax Return page or book a consultation with one of our experts today.

At Causbrooks, our Sydney-based tax accountants are committed to making the process of lodging your SMSF tax return as smooth as possible. We understand the complexities involved in managing an SMSF and the importance of being compliant.

For more detailed information on how we can assist with your SMSF tax returns, visit our SMSF Set Up page or book a consultation with one of our experts today.

About Causbrooks

Causbrooks gives you a client manager supported by a team of knowledgeable accountants. We’re here to take the guesswork out of running your own business. Our accountants have much experience working with small business owners.

Get in touch with us to set up a consultation or use the contact form on this page to inquire whether our services are right for you.

Disclaimer

Any advice contained in this document is general advice only and does not take into consideration the reader’s personal circumstances. Any reference to the reader’s actual circumstances is coincidental. To avoid making a decision not appropriate to you, the content should not be relied upon or act as a substitute for receiving financial advice suitable to your circumstances.

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