If you’ve been saving for a house deposit, but haven’t yet reached the magic number of 20% of your target purchase price, it might be time to take another look at what you consider ‘saving.’
The truth is that most people are just throwing money away when they don’t have enough for a deposit on their own home. The average Australian mortgage is $400k whereas the median cost of homes in Australia is about $500k. This means that even if you saved up an extra 20% or so each month, it would still take about 7 years to save up for your first home. And this doesn’t include any other savings goals like superannuation or retirement living expenses.
Now, for many people, that’s just way too long to wait, and they may opt to rent instead. Rent prices are also high these days, with the median price across Australia being about $420 (which varies quite a bit depending on location). This means if you’re paying rent, you could potentially save up the 20% deposit in less than half the time. Make sure you seek professional advice and learn about the tax deduction, company title interest and relevant product disclosure statement, how to save money, how to make a home deposit, learn about the first home super saver scheme and home loans and much more.
What can a super be used for?
This brings us back to the question of whether or not you can take your super savings early and use it to buy a house or as a deposit for one. You might have seen this being done by retirees who quickly become landlords after selling their own homes. But is there a chance for first-home buyers to pull money from their super fund to put towards a deposit?
The act of withdrawing money from your super fund is formally called ‘transition to retirement’ (or TTR). The basic idea is that if you’re within 10 years of your self-managed super fund (SMSF) balance being zero (I.e. you’re retiring), then you can withdraw up to 10% of your total super per year. This withdrawal may be paid into an account outside the SMSF and that fund cannot be related to any sort of investment in the SMSF itself. Once these rules are met, transition to retirement has been deemed legitimate by ATO standards.
Unfortunately, however, only about 1% of Australians actually go through this process before they retire and begin drawing a pension. The reason is that the government didn’t expect that most people who go through this process may continue working well into their 60s and 70s. This means that for those who actually do go ahead with the transition to retirement, they cannot be penalized for withdrawing funds too early, as long as age restrictions are met (i.e. you’re within 10 years of your self-managed super fund balance being zero). According to ATO statistics, withdrawals can still incur tax penalties if taken before age 55 or after 65, but whether or not they may be enforced is another matter entirely.
How to use my super retirement savings?
So now that we know what TTR money is allowed to be used for, let’s drill down into how we can actually use it. The first thing you need to know is that this money may not be part of your net taxable income, so you won’t have to pay tax on it if you use it for a property deposit. Of course, this works well only if the property’s capital gain after purchase is less than 10% of your initial housing deposit. This basically means that if you bought a property worth $400k and it rises by 10% in value within 2 years, then the ATO may consider it as though you made about $40k profit on your investment. If you put all this money through TTR, then the ATO would see that as an ‘income’ rather than having gone towards buying a house.
Can I use my super for a house deposit 2022
From the ATO’s perspective, if you withdraw money from your super fund and don’t put it into a standard bank account, then you’re drawing funds out to be used as personal income. This means that if you use TTR money to buy an investment property (and the above example applies), then any additional gains on top of 10% may incur penalties like capital gains tax (CGT). The good part is that unlike other types of income, there are no limits or caps for properties purchased with TTR money. So even if you make 100k in profit over 3 years (not including CGT and transaction costs), as long as you buy another property within this time frame using TTR funds, then there won’t be any penalties imposed.
Of course, there are still other ways to use TTR money beyond property investment. For example, if you want to buy shares in blue-chip companies like BHP Billiton or Woolworths, then you could create a separate account with your super fund and only use the TTR money for share trading purposes. This is because the ATO doesn’t regard shares as an income source versus other types of revenue, so there are no penalties for buying them this way.
It is also handy to use a property settlement calculator to calculate acquisition costs
Can I use my super for a house deposit 2021
Can I withdraw my super early? Yes, it’s called transition to retirement (TTR), but you need to make sure the withdrawal goes into an account outside your SMSF. So can I use it for a property Yes, you can do this provided that you buy another property within 3 years. Can I withdraw it for shares/other investments? Yes, this is where TTR money is useful, with no CGT or capital gains restrictions. Just make sure the withdrawal goes into an account outside of your SMSF.
So there you have it. As long as you keep the super money in an external account while still working, then you’re free to use it almost however you want. You just need to find a financial adviser who may help navigate these rules with the ATO so that everything matches up correctly on paper. It’s definitely not something most people are educated on, but hopefully, this article proves informative.
What is the home super saver scheme?
The super home saver scheme (SHS) allows you to withdraw your super savings for a house deposit, while the government adds an extra 15%. Remember that once you start withdrawing from your super account it’s taxed at 3%, so this is a great way to save in the long run. How much can I withdraw for a house deposit? The maximum amount you can withdraw in one go is $30,000 and you may have been contributing money to your fund for at least 12 months. You’ll need to have about $300k saved in your retirement nest egg before being able to access any of this money.
There are no CGT or capital gains restrictions when buying property or shares with TTR money. You can also make unlimited withdrawals from your super account as you are passing on the proceeds to yourself. But be careful because any extra income may incur a tax of 3% until you turn 60 years old. The biggest downside is that cashing in large chunks of your fund for investment purposes leaves it vulnerable to market fluctuations, especially if you’re buying shares or property. If the market crashes, then this could spell financial disaster for your future retirement plans.
What is considered an investment property?
Basically, if you’re borrowing money in order to buy an asset, then it’s considered an investment property. This means that buying a house or unit within your SMSF can be classified as an investment property and incur CGT if the market value goes up after 3 years. As we mentioned above, there are no limits on how much profit you make from this type of transaction, but it could potentially be made with TTR money.
What is capital gains tax?
Capital gains tax (CGT) is a form of financial penalty imposed by the ATO when somebody makes a profit from selling an asset like shares or real estate. In other words, if any investments purchased with TTR money increase in value beyond 10%, then you’ll have to pay a 15% tax when you sell them. If this happens within 3 years from when the initial withdrawal was made, then CGT doesn’t apply and you don’t have to worry about any extra fees.
What is a concessional tax treatment?
This tax treatment is a financial benefit or advantage available only to a small portion of the population. This type of treatment most commonly applies to individuals with high income and large sums in their super fund, also to avoid financial hardship during home loans that they take to buy a house.
How can home buyers use their super?
For example, if you’re looking to buy an investment house or unit, you can make over $800k profit by doing it through your SMSF. You’ll need to consult with a financial adviser first to work out how withdrawing this kind of money may impact your future retirement plans though.
As far as withdrawals go, there are no limits on amounts up to $100k (or $300k for couples) but anything beyond that would incur a penalty fee from the ATO. The best way around this is taking advantage of the transition-to-retirement option which lets people retire while using their super savings for other financial goals like property investing or buying shares.
Tips for the average home buyer in Australia
The property market in Australia is very competitive and becoming a homeowner can take a lot of sacrifices. Homebuyers need to plan ahead, be patient, work hard and save as much money as possible. Another viable option is taking advantage of low-interest rates by borrowing money for the house you want. This way, it’s possible to start investing in property without having to pay too much of a dent in your savings. Some of the best tips we can provide are:
- Try to save as much money for a deposit as possible
- Don’t borrow too much money when buying property, especially if it’s an investment property, which can be risky
- Consider purchasing property within your SMSF where possible
- Consult with financial professionals or retirement planning experts for advice on how TTR rules apply in different scenarios
- If running an SMSF is too difficult, consider other options like buying off-the-plan properties, which are cheaper and do not incur the extra fees of investing through superannuation
- Have fun. Buying your first home should be an exciting time, so don’t get caught up in finance talk, enjoy the experience
What are voluntary super contributions?
Voluntary contributions are payments made directly by the home buyer, but they can only be done in increments of $100 or up to $300 for couples. Since 2002, voluntary contributions have been subject to a lower tax rate than regular superannuation earnings. Voluntary contributions are also known as concessional contributions, these payments are usually used by people who want to take advantage of investment opportunities that are exempt from capital gains tax. Voluntary super contributions are also useful for increasing the amount of money in your retirement fund so you can get more out of it when you do retire.
What are concessional contributions?
Concessional contributions are payments made by the home buyer to their super fund. These payments are taxed at a lower rate than regular paychecks, but they’re capped at a maximum of $25k per year or $35k for couples. You can also put up to $100k into your SMSF through voluntary contributions and this amount is not limited in any way which makes it an excellent investment option for high-income earners who want to take advantage of compound interest returns from property investing. Eligible concessional contributions can also be made if the home buyer makes less than $250k per year.
What is a first home super saver scheme?
A first home super saver scheme encourages first home buyers to save for a deposit by offering them a tax break of up to $10,000 as well as the ability to withdraw their contributions (but not the earnings) before they turn 18. As of July 1st 2017, these schemes are only available in Victoria and NSW. The home loan deposit scheme is offered by the government, so it’s a massive advantage for home buyers when applying for home loans to buy a house and avoid financial hardship.