Can I Use My Super To Buy A House As A First Home Buyer?
Is it possible to use super to buy property in today’s property market sooner than you expected?
As it turns out, YES! The good news is that First Home Super Saver Scheme (FHSS) provides great assistance when you buy a house!
The First Home Super Saver Scheme (FHSS)
It is wonderful to learn that all the money that is being saved over the years for superannuation can actually be used to buy property! The first home super saver (FHSS) scheme allows you to save money for your first home inside your super fund.
Introduced by the Australian Government in the Federal Budget 2017–18, the FHSS was to reduce pressure on housing affordability in Australia. The aim is to help first home buyers save faster with the concessional tax treatment of superannuation.
FHSS Maximum Release Amount
Homebuyers are eligible to make voluntary contributions towards their super and use it as a house deposit. This scheme allows first home buyers to save up to $15,000 of voluntary contributions overall a year or a maximum of $30,000 in total.
The FHSS maximum release amount includes:
- 100% of eligible non-concessional contributions
- 85% of eligible concessional contributions
- Associated earnings calculated on these contributions using a deemed rate of return – this is based on the 90-day Bank Bill rate plus three percentage points (shortfall interest charge rate).
You can begin by making voluntary contributions to your super account. One easy way is to devote your after-tax payment towards it.
Your contributions would get directly transferred into your existing super account while you’re saving up for the rest of your deposit.
Once you have saved up enough via your self-managed super fund for a deposit, you simply have to apply to the Australian Taxation Office for an FHSS determination. The determination will let you know how much you are eligible to receive from your super account – up to a maximum amount of $30,000 of the voluntary contributions you have made plus any earnings on that amount.
After receiving your determination, you can apply to release the funds online through your MyGov account. It’s important to at least have your determination before signing the contract to buy or build your new home.
The property purchased must be occupied as soon as practicable and be occupied for at least six months of the first year. The ATO also must be notified of these matters within 28 days of entering the contract.
If you decide to go against buying your first home after having received the determination, you need to recontribute the amount back into your fund. A failure to do so will lead to a tax of flat 20% on the amount released.
What Are The Eligibility Criteria For FHSS?
If you are a first home buyer and considering using your superannuation to buy your first home, the below eligibility criteria apply:
- You either live in the premises you are buying, or intend to as soon as it is practically possible
- You intend to live in the property for at least six months within the first 12 months you own it after it is practical to move in.
You can apply to have a maximum of $15,000 of your voluntary contributions from any one financial year included in your eligible contributions to be released under the FHSS scheme, up to a total of $30,000 contributions across all years.
You can apply through your self-managed super funds as well.
When Can One Start Making Super Contributions?
You can start making super contributions at any age. However, you must be 18 years old or older to request a determination or a release of amounts under the FHSS scheme.
Important Points To Note To Avail The FHSS
There are a few other things that First Home Buyers need to consider in order to avail the FHSS scheme:
- You must never have owned property in Australia. This includes investment property, vacant land, commercial property, a lease of land in Australia, or a company title interest in land in Australia (unless the Commissioner of Taxation determines that you have suffered a financial hardship).
- You also must not have previously requested the Commissioner to issue an FHSS release authority in relation to the scheme.
Eligibility To Use Super For Investment Property
Eligibility is assessed on an individual basis. This means that couples, siblings or friends can each access their own eligible FHSS contributions to purchase the same property. If any of you have previously owned a home, it will not stop anyone else who is eligible from applying.
Since applications are submitted individually, you may still be eligible even if someone you’re buying the home with is not. For instance, if your partner is not a first home buyer but you are, you may still be able to access your own super contributions and channel them towards your deposit even though your partner won’t be able to access theirs.
If you’re interested in choosing an SMSF property loan, keep reading!
Self-Managed Super Fund (SMSF)
If you decide to go with a self-managed super fund, you can use the money to buy a property. Yes, you are thinking right. it does sound too good to be true.
So, there must be a catch, right?
Well, the catch is, you aren’t allowed to live in it. You can buy the property through your SMSF, and the fund can have one to four members. The members then collaboratively make a decision about how the super is invested.
Eligibility For SMSF Property Loans
To buy a property through an SMSF, you need to comply with the following rules:
- Fulfill the sole purpose test of providing retirement benefits to fund members
- Not acquired from relatives
- Not lived in by any members of the fund or related parties of the fund
- Not rented by a fund member or associated parties of the fund
What Are The Pros And Cons Of The FHSS For A First Home Buyer?
- Save money on tax repayments
- You can use the scheme as a couple, combining your funds
- The funds earn SIC rate of 4.96% p.a. which is higher than most savings accounts
- The amount you can withdraw doesn’t vary with falling markets
- You will be given a 12-month buffer to purchase a home with the funds after you withdraw the money.
- It is subject to change in accordance with government changes.
- It can be a slow process to release the funds, up to 25 business days. Which means you could be at risk of losing your potential dream home.
- If you sign a contract BEFORE releasing the funds, you will need to pay a 20% FHSSS tax.
- $30,000 is the maximum a single person can contribute to the fund, which may not be enough for a deposit depending on your purchase price.
- Returns are limited to the Shortfall Interest Charge (SIC) rate 4.96% p.a. Which is low in comparison to other super funds.
THE FINAL WORD
So what should you do?
It is important to note that before choosing to take up these schemes, consider thoroughly whether it is right for you to use your super to buy your first home or if saving up for a deposit (even though it might take a little longer) – without using your superannuation contributions – is more appropriate.
On one hand, rental property is not as beneficial in the long run as having your own investment property but again superannuation is an asset in the form of retirement savings that can be used to reap retirement benefits.
Moreover, it can be very helpful to seek independent advice from a mortgage broker with an Australian credit license or a financial adviser to ensure stress-free financial decisions and stay updated about future opportunities to buy an investment property. They would be able to guide you as per your personal needs and wants and whether the cons apply to your situation or not.
After all, buying your first home paves way for future investment properties.
CONTACT US TODAY
Want to know more about purchasing your first home with your superannuation account?
We understand that buying your first home or mapping out a solid investment strategy as property investors can be overwhelming and that is why we are here for you.
Get in touch with us by calling (02) 9056 4311 or simply enquire here and the Liviti team will be delighted to help.