How do I buy property with my superannuation?

October 17, 2022

Are you looking to buy property with your superannuation?

If you are, you’re not alone. In Australia, an increasing number of people are using their superannuation to buy property.

There are a number of advantages to using your super to buy property. For example, you can:

•   Borrow money to buy property without having to pay any interest on the loan

•   Buy property in your super fund, which can provide you with tax benefits

•   Use your super to buy property before you retire, which can help you ‘top up’ your retirement income

However, there are also a few things you need to be aware of before you use your super to buy property. In this blog post, we’ll take a look at everything you need to know about using your super to buy property in Australia.

What is superannuation?

Superannuation is a retirement savings account that is offered by most employers in Australia. Employers are required to make contributions to their employees’ super accounts (usually 9.5% of their salary), and employees can also make voluntary contributions.

The money in your super account can be used to provide you with an income in retirement, and it can also be used to purchase property.

Can I use my super to buy property?

Yes, you can use your super to buy property in Australia. There are a few different ways you can do this:

1.   You can borrow money from your super fund to buy property

2.   You can buy property through your super fund

3.   You can use your super to buy property before you retire

Borrowing money from your super fund to buy property

If you want to borrow money from your super fund to buy property, you can do so through a process called ‘limited recourse borrowing’.

Limited recourse borrowing is a type of loan that is available to people who have self-managed super funds. Under this type of loan, the lender can only take action against the property that is being purchased with the loan, not against the borrower’s other assets.

This means that if you default on the loan, the lender will not be able to take action against your other assets, such as your home.

To be eligible for a limited recourse loan, you must:

•   Be a member of a self-managed super fund

•   Have an investment strategy that allows you to borrow money

•   Have the property you want to purchase valued by a professional valuer

•   Be able to demonstrate that you have the capacity to repay the loan

•   Have the property you want to purchase insured

If you meet all of the above criteria, you can apply for a limited recourse loan from your super fund.

Buying property through your super fund

Another way you can use your super to buy property is by purchasing the property through your super fund.

To do this, you will need to set up a self-managed super fund. Once you have done this, you will be able to use your super contributions to purchase property.

You can purchase residential or commercial property through your self-managed super fund. However, there are a few things you need to be aware of before you do this:

•   You will need to have the property valued by a professional valuer

•   You will need to take out insurance on the property

•   You will need to have an investment strategy that allows you to purchase the property

•   You will need to have the property inspected by a professional inspector

If you meet all of the above criteria, you can purchase the property through your self-managed super fund.

Using your super to buy property before you retire

If you want to use your super to buy property before you retire, you can do so through a process called ‘transition to retirement’.

Under the transition to retirement rules, you can use your super to buy property before you reach retirement age. This can be a great way to ‘top up’ your retirement income.

To be eligible for the transition to retirement rules, you must:

•   Be aged 55 or over

•   Have started a transition to retirement income stream

•   Have an account-based pension

If you meet all of the above criteria, you can use your super to buy property before you retire.

What are the tax implications of using my super to buy property?

If you use your super to buy property, there may be some tax implications.

For example, if you borrow money from your super fund to buy property, the interest you pay on the loan will be taxed at your marginal tax rate.

Additionally, if you purchase property through your self-managed super fund, the rental income you receive from the property will be taxed at 15%.

However, there are some tax advantages to using your super to buy property. For example, if you purchase a property through your self-managed super fund, the capital gains tax on the sale of the property will be taxed at a maximum of 15%.

Before you use your super to buy property, it’s important to speak to a tax advisor to make sure you understand the tax implications.

Are there any other things I need to be aware of?

Yes, there are a few other things you need to be aware of before you use your super to buy property.

For example, if you borrow money from your super fund to buy property, you will need to make sure you keep up with your loan repayments. If you don’t, the property could be sold to repay the loan.

Additionally, if you use your super to buy property before you retire, you will need to be aware of the ‘preservation rules’.

Under the preservation rules, you can only access your super when you reach retirement age (usually 65). However, there are a few exceptions to this rule, such as if you become disabled or if you die.

If you use your super to buy property before you retire, you will need to make sure you keep the property until you reach retirement age. Otherwise, you may not be able to access your super.

Conclusion

If you are looking to buy property with your super, there are a few things you need to be aware of.

In this blog post, we’ve taken a look at everything you need to know about using your super to buy property in Australia. We’ve also looked at the tax implications of using your super to buy property.

If you’re thinking about using your super to buy property, it’s important to speak to a financial advisor to make sure you understand the risks and benefits.

For further insights, take a look at the Chimni Dashboard.

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