Is it possible to use my superannuation to put down a deposit on a home?
In 2015, Australia’s parliament debated the merits of introducing an innovative way to help young Australians buy their first home: allow them to access their superannuation to put down a deposit. Such a system is already in place in Canada, where first home buyers can access up to $25,000 of their retirement savings to buy a home, and must then repay that amount in no less than 15 years.
Budget 2017 First Home Super Saver Scheme
At the time of writing, there are no concrete plans in place to introduce such a scheme in Australia. However, there are still ways you can use your superannuation balance to help buy a home. Read on to find out how.
Can I use my super to buy a house?
The answer to this question is currently no, but it’s a topic of hot debate in Australian political and financial circles. In 2015, then-treasurer Joe Hockey suggested that first home buyers should be allowed to access their super to put down a home deposit, and groups such as the Real Estate Institute of Australia and the Committee for Economic Development in Australia supported the suggestion. The idea has been floated again, with Assistant Treasurer Michael Sukkar refusing to rule it out as a measure to be introduced in the government's May budget.
Proponents of the proposed legislation claim it will help young Australians purchase property sooner and increase housing affordability, making it easier for more first-time buyers to break into the market. There’s even a similar scheme in place across the ditch in New Zealand, where first home buyers can withdraw their retirement savings from their KiwiSaver accounts to buy a home.
However, other commentators have opposed the move, claiming it could actually drive housing prices up even further, and also have worrying consequences for the retirement savings of many Australians. Former Prime Minister Paul Keating has been a vocal critic, claiming the move would rob young Australians of their retirement savings later in life.
In any case, it’s currently not possible for Australian first home buyers to use their super balance as a deposit on a property. Watch this space for future developments.
In the meantime, let’s look at some of the ways in which super can be used to help fund the purchase of property.
Buying a home through an SMSF
Did you know that it’s possible to buy property through your self-managed super fund (SMSF)? However, you can’t use your super balance to buy a principal place of residence, only an investment property.
This is due to the simple fact that superannuation is designed to fund your retirement, not to help you fund the essential purchases you make throughout your life. The purchase of an investment property is allowed because it gives you the potential to earn rental income and also take advantage of a capital gain when you sell the property, thereby increasing your retirement savings.
It’s also worth pointing out that there are limits on how much you can borrow when taking out an investment property loan through an SMSF, and the tax benefits of investing through super are different to when you invest using your own money. The finder.com.au guide to investing in property through your SMSF explains all the ins and outs.
Accessing your super before you retire
There are strict rules in place to prevent Australians accessing their superannuation balance before they retire. These rules are designed to stop Australians dipping into their super, ensuring that a greater percentage of the population has enough money to enjoy a comfortable lifestyle once they stop working.
In order to access your super before your retirement, you’ll need to satisfy a condition of release. Some common examples that might allow you to access your super early are if you suffer a serious illness or disability, or if you are experiencing extreme financial hardship (including receiving Commonwealth income support payments). Unfortunately, simply wanting to access your super so you can put down a deposit on a house is not a condition of release.
But it’s not all bad news. If you’ve reached the preservation age, which is 55 years for Australians born before July 1960, and at least 56 for people born after June 1960, the rules surrounding early access to your super aren’t quite as strict.
If this is you and you want to access your super benefits to put down a deposit on a house, there are two options you can consider to help you get the funds you need:
- Retire. If you’ve reached your preservation age and you retire, you can withdraw your super benefits. However, you should be aware that you may need to pay tax on any super benefits you withdraw before reaching 60 years of age.
- Set up a transition to retirement (TTR) pension. This option is designed to allow Australians who have reached their preservation age to keep working while also accessing some of their super benefits – you can withdraw between 4% and 10% of your pension account balance each year.
There is a range of financial and taxation implications to consider if you choose either of these approaches, so ask your accountant for their expert advice.
So I can't access my super for a house deposit, now what?
You can't access your super to put towards your first home purchase, so you might want to see what other tips you can put into practice. Read our deposit saving guide and our home buying guide for more information on the process.