Investing using your superannuation is easier thanks to new legislation that allows superannuation funds to be used to borrow money for purchasing property.
Having a superannuation fund can make or break an investor’s comfortable retirement, but saving for one’s retirement is not the only possible use for the fund.
Buying a property with a super fund is possible if:
- a trustee of a self-managed super fund (SMSF)
- a trustee of some retail, corporate, and industry superannuation fund (to which options will vary depending on the type of fund)
- a trustee of a fund with more than AU$200,000 that is able to pay liabilities and pension payments of their members
Before any property purchase, make sure that your super fund has the following:
- sufficient deposit to meet minimum advised criteria—this may range from 20 to 30 per cent of the purchase price, depending on the lender
- adequate surplus cash to cover costs and insurance premiums
- regular income sufficient to cover negative gearing shortfall on a property
- enough ‘other assets’ in the fund to ensure your portfolio is adequately diversified
Answering the following questions can help investors decide whether or not purchasing a property using superannuation is advisable:
- Does my Super allow me to purchase an investment property without risking my retirement?
- Does my cash flow allow me to make repayments from my super and to grow my super fund?
- Can I afford possible tax losses, which can’t be offset against my taxable income?
- Am I willing to forego altering the property, which can be made under the Australian Securities and Investments Commission (ASIC) law?
If the possible risks outweigh the benefits, prompting you to answer a “no” or a “maybe”, you may want to re-evaluate other property acquisition options.
Investing in property using your super does have benefits, such as:
- Lower tax—the super fund will be taxed at 15 per cent, lower than personal tax rates
- Tax-free sale—when selling property while the SMSF is in its pension phase, the sale will be tax-free
- Capital gains tax at a discounted rate— selling property during the SMSF’s accumulation phase will be at a discounted rate
Buying and investing in property with your Super, may be the least costly investment option. But as with all investment decisions, it is sound to ask property professionals if this is an option that could pose the least risk for your comfortable retirement.
Of course, this does not constitute financial advice. It is always advisable to seek advice specific to your circumstances before making any major financial decisions.