Can You Use Superannuation to Buy Property? Here’s What You Need to Know
Lately, we’ve seen more people asking about using their superannuation to buy property. As more Australians take control of their retirement savings, exploring how super can help them build wealth is becoming a hot topic. Let’s break down the basics for you:
Can You Buy Property with Super?
Yes, you can!
But it’s not as simple as buying a property personally, and there are extra steps involved. It’s very important to seek advice from professionals—your accountant, financial adviser, and mortgage broker should all be experienced with this process.
To buy property through your super, you’ll need to set up a Self-Managed Super Fund (SMSF).
Setting up an SMSF and transferring your existing super into your new fund is a complex process, so make sure your accountant and financial adviser are on board from the start to get things set up correctly.
What Kind of Property Can I Buy?
With an SMSF, you can buy either residential or commercial property. But there are some rules you need to know about:
Residential property can’t be:
Bought from a related party (like yourself or a family member)
Rented out or lived in by you or a related party.
Used as your primary home or a holiday house.
Commercial property used for business purposes can be:
Bought by your SMSF and leased to your own business at market rates.
Bought as an investment and rented out to a third party.
Can I Borrow to Buy Property?
Yes, you can borrow within an SMSF, but it’s a bit different from a regular home loan.
Any borrowing in an SMSF must be done through a Limited Recourse Borrowing Arrangement (LRBA). This means the lender’s security is limited to the property you buy, not the other assets in your SMSF. The LRBA stays in place until the loan is paid off and the lender’s mortgage is discharged.
LRBAs can only be used to buy or refinance a property—they can’t be used to:
Build a house or develop land.
Cover repairs or renovations.
Access equity for other investments, like buying more property or shares.
You’ll need enough cash in your super to cover at least a 20% deposit plus all the upfront costs like stamp duty and legal fees. Also, keep in mind that LRBA loans tend to come with higher fees and interest rates.
What Are the Benefits of Buying Property with Super?
Here are three key potential benefits to buying property within your super:
1. Tax Savings
Super is a tax-effective way to invest in Australia. Any earnings, like rent from a property, are taxed at just 15%, which is much lower than the usual income tax rate.
For example, if you earn $100,000 a year outside of super, you could pay over $24,000 in tax. Inside super, those earnings could be taxed at just $15,000, creating potential savings.
2. Cash Flow
Your super can cover the costs of the investment property, including loan repayments, using rental income and your employer’s super contributions. This means you’re not dipping into your personal finances to fund the investment—it all happens within your super fund.
3. Asset Protection
An LRBA protects your other super assets from creditors, unlike assets purchased outside of super. This adds an extra layer of protection for your retirement savings.
What’s Next?
The information provided here is general and doesn’t consider your personal financial situation. If you would like to discuss the lending requirements in further detail please book a discovery call today!