Though superannuation was first intended to be a means of saving money for retirement, many people are curious as to whether they can use it to assist in the purchase of real estate.
The answer is yes, but with some conditions. The Australian government has introduced a scheme called the First Home Super Saver (FHSS) that allows first-time homebuyers to use their superannuation savings to help purchase their first home. This scheme offers several benefits including tax advantages and the potential for higher investment returns.
How Does the FHSS Scheme Work?
Under the FHSS scheme, you can contribute up to $15,000 per year from your pre-tax income to your superannuation account, specifically for the purpose of buying your first home The total amount you can contribute across all years is capped at $50,000. This money will be taxed at a concessional rate of 15%, which is significantly lower than your marginal tax rate.
Once you have saved enough money in your super account, you can apply to the ATO to release these funds to use towards your first home purchase. The ATO will calculate the amount you can withdraw, taking into account your contributions, earnings, and applicable taxes
Benefits of Using the FHSS Scheme
There are several benefits to using the FHSS scheme to buy your first home:
- Tax Advantages: As mentioned earlier, contributions made under the FHSS scheme are taxed at a concessional rate of 15%, which is lower than your marginal tax rate. This can result in significant tax savings.
- Potential for Higher Investment Returns: The money you contribute to your super account under the FHSS scheme can be invested in a range of assets, potentially generating higher returns than you would receive from a traditional savings account.
- Access to More Funds: By using your superannuation savings, you may be able to access a larger deposit for your first home, which can improve your chances of getting a mortgage and potentially lower your interest rate.
Limitations of the FHSS Scheme
While the FHSS scheme offers several benefits, there are also some limitations to keep in mind:
- Eligibility Requirements: To be eligible for the FHSS scheme, you must be a first-home buyer and meet certain income and residency requirements. You also cannot have previously owned a property in Australia.
- One-Time Use: You can only use the FHSS scheme once to purchase your first home.
- Time Restrictions: You must sign a contract to purchase or construct your home within 12 months of withdrawing your FHSS funds. Otherwise, you may have to pay a penalty tax.
- Limited Property Types: The FHSS scheme can only be used to purchase a residential property in Australia. You cannot use it to purchase vacant land, a houseboat, or other types of non-residential properties.
Eligibility Requirements for the FHSS Scheme
To be eligible for the FHSS scheme, you must meet the following requirements:
- Be at least 18 years old
- Be an Australian citizen or permanent resident
- Have not previously owned a property in Australia (with some exceptions)
- Intend to live in the property you are purchasing as your main residence for at least six months of the first 12 months of ownership
- Meet the income and residency requirements set by the ATO
How to Apply for the FHSS Scheme
If you meet the eligibility requirements, you can apply for the FHSS scheme by following these steps:
- Contact your superannuation fund and let them know that you want to participate in the FHSS scheme.
- Make eligible contributions to your superannuation account.
- Complete an FHSS determination form and lodge it with the ATO.
- Once your application is approved, you can request the release of your FHSS funds when you are ready to purchase your first home.
Frequently Asked Questions (FAQs)
Q: Can I use my super to buy an investment property?
A: No, the FHSS scheme can only be used to purchase a residential property that you intend to live in as your main residence.
Q: Can I use my super to buy a house and land package?
A: Yes, you can use your super to buy a house and land package, as long as the land is attached to the house and you intend to live in the house as your main residence.
Q: Can I use my super to renovate my home?
A: No, the FHSS scheme can only be used to purchase a new or existing residential property. It cannot be used for renovations or other home improvements.
Q: What happens if I change my mind about buying a home?
A: If you change your mind about buying a home after you have withdrawn your FHSS funds, you can either return the funds to your superannuation account or pay a penalty tax of 20%.
Q: What are the risks of using my super to buy a house?
A: The main risk of using your super to buy a house is that the value of your superannuation investment could fall, resulting in a loss. It is important to carefully consider your investment options and seek professional financial advice before making any decisions.
The FHSS scheme can be a valuable tool for first-time homebuyers looking to save for a deposit. However, it is important to carefully consider the eligibility requirements, limitations, and risks before deciding whether this scheme is right for you. If you are unsure, it is always best to seek professional financial advice.
Who is eligible to use the First Home Super Saver Scheme
The FHSS Scheme may be available to you if you are:
- 18 years or older when requesting access to funds. Eligible contributions can be made before you turn 18.
- a first-time home buyer who has never owned any real estate in Australia, including investment property, vacant land, commercial property, leasehold interest in Australian real estate, or company title interest in Australian real estate (you may still be eligible even if you have owned real estate in the past if the government has determined you have experienced financial hardship).
- Within a year of purchasing the property, or once it is reasonable to move in, spend at least six months living there.
- never before requested the release of funds from the scheme
Couples, siblings, or friends may each use their own eligible FHSS contributions to purchase the same property because eligibility is determined individually.
Can you use super to buy a house
Sure, there are ways to use super to purchase a home, but it’s not as simple as you might imagine.
The super you have saved over the years cannot just be taken out to purchase your first home (unless you are a retiree and have reached preservation age, which is the age at which you can begin taking out super).
Purchasing real estate with your superannuation fund can be done in three ways:
- By making additional super contributions through the federal government’s First Home Super Saver Scheme (FHSS), you can help save a deposit for your first home more quickly.
- By establishing a self-managed super fund (SMSF) and purchasing an investment property with the proceeds
- You can use your superannuation for anything you want once you’re eligible to use it (currently 60 if you’re retired or 65 if you’re still working).
More and more individuals are taking charge of their own superannuation and investing decisions. Picture: Getty.