Can I Use My Super to Buy an Investment Property in Australia?

“Can I use my super to buy an investment property?” If you’ve ever wondered about this question, you’re not alone! The interest in superannuation property investment has been growing steadily over the years as an increasing number of Australians make the switch to Self-Managed Super Funds (SMSF). In 2011, the Australian Taxation Office (ATO) reported 440,000 SMSFs. Fast forward to 2023, and that figure has jumped to 606,217, with over 1.13 million members! And according to the latest figures from the ATO, superannuation property investment in Australia has increased to $166.9 billion.

But the question remains: “How can I use my super to buy an investment property?” Additionally, what are the SMSF property investment rules? This Super Fund Property Buying Guide has been designed to answer all of these questions (and more!).

Accessing Super for Property Purchase: Can I Use My Super to Buy a House?

The good news is, yes, you can! Accessing super for a property purchase is entirely possible, subject to a few simple conditions. You can use your super to buy a house if you are in any of the following categories:

• • A property investor
  • A first home buyer
  • A retiree or over the age of 65

Considering the growing popularity of superannuation property investment, we’ll start by discussing how you can use your super to buy an investment property and what are the SMSF property investment rules in Australia.

How Can I Use My Super to Buy an Investment Property?

You can use your super to buy an investment property through a Self-Managed Super Fund. The ATO classifies this investment as ‘sole purpose’, which means it can only be used to pay retirement income to SMSF members. SMSF property investment rules are strictly regulated, so you must have a clear understanding of all the regulations before committing to this kind of property investment. For this reason, it’s a good idea to seek professional legal and financial advice before proceeding with a superannuation property purchase.

Self-Managed Super Fund Property Buying Guide

Before you can proceed with a superannuation property investment, you’ll need to have a few things in order. This includes:

1. 1. Establishing an SMSF: You’ll either need to set up an SMSF or already be a member of an existing one. You’ll also need to comply with the Superannuation Industry (Supervision) Act (SISA) and Superannuation Industry (Supervision) Regulations (SISR). This would include keeping thorough records and meeting annual audit requirements.
   2. Understanding Contribution Rules: You can use your superannuation savings to purchase an investment property through your SMSF. These savings can include personal contributions and employer contributions that you’ve already accumulated.
   3. Sole Purpose Test: The primary purpose of an SMSF must be to provide retirement benefits to its members. Because of this, investment property purchases must comply with the ‘sole purpose’ test. Essentially, this means the property can’t be used by SMSF members for personal use (so, you can’t buy a residential home as an SMSF “investment” and then live in it before you reach retirement age).
   4. Borrowing Rules: To purchase property through your SMSF, you can use a limited recourse borrowing arrangement (LRBA). This means that the property is held in a separate trust, and if the SMSF defaults on the loan, the lender can’t go after any other assets held by the SMSF (this helps to protect additional SMSF investments).
   5. Property Restrictions: There are restrictions on the types of properties you can purchase. For example, the property must meet the definition of “business real property”, which would include commercial, industrial and some agricultural properties. This definition will typically exclude residential properties, although certain exemptions do apply.
   6. Loan Repayments: Any loan repayments for the investment property must be made from the SMSFs own assets. This means you can’t use the personal funds of members to service the loan. However, you can use rental income generated by the investment property.
   7. Tax Considerations: Make sure all SMSF members understand the tax implications associated with SMSF property investments. This would include capital gains tax (CGT) and income tax.

Accessing Super for Property Purchase: First Home Buyers

First home buyers can access their super for a property purchase under the Federal Government’s First Home Super Saver Scheme (FHSSS). However, the FHSSS is designed for first home buyers to use only their voluntary personal super contributions (not employer contributions). You can apply to have up to $15,000 of your voluntary contributions – either pre-tax or post-tax – included in the FHSS scheme each financial year. The maximum contribution across all years is currently capped at $50,000.

How Do I Access My Super for the FHSSS?

When you’re ready to buy a house using your super, you can apply to the ATO. The ATO will then evaluate your eligibility and determine your deemed earnings based on your additional contributions.

Consider contacting the ATO as soon as you begin looking for a home. This allows adequate time for the ATO to assess and then release your funds. The ATO will inform your super fund of the amount of your super savings it can release to you, as well as any tax implications you should be aware of. More information about this scheme is available on the ATO website.

Accessing Super for Property Purchase: 65+ or Preservation Age

The only other time you can use your super to buy a house (if you’re not a first-time buyer and aren’t in an SMSF) is if you have full access to your super. Once you hit 65 (even if you haven’t retired) or reach ‘preservation age’ and have retired, you will have full access to your superannuation funds. Your super is a ‘preserved benefit’, and your preservation age is determined by the ATO depending on your date of birth. If you were born before July 1, 1960, your minimum preservation age is 55, progressively increasing to 60 if you were born after July 1, 1964.

How Can I Use My Super to Buy an Investment Property – What Help Is Available?

Even with the information provided in this Super Fund Property Buying Guide, you’re sure to have more questions. If that’s the case, it’s a great idea to speak with a trusted mortgage broker to get some expert (and free!) advice. Get in touch with the mortgage experts at North Brisbane Home Loans today and we’ll be more than happy to help with your superannuation property investment!