When it comes to buying property, many Australians are exploring ways to leverage their superannuation (super) to get a foothold in the real estate market. But is it possible to use your super to buy a property? The short answer is yes, but with significant restrictions and specific guidelines. In this article, we’ll dive into the details of how it works, what options are available, and the key things you need to consider before tapping into your super to purchase property.
Superannuation is money that you or your employer contribute into a fund during your working life to provide for your retirement. The primary purpose of super is to help you live comfortably in retirement, and the Australian government has strict rules in place to protect these funds.
Are you struggling to save for a house deposit? I get it – breaking into the property market feels like climbing Mount Everest these days! One question we often see from first home buyers is whether they can tap into their superannuation to make that dream home a reality, Let’s dive into this topic and see what’s possible in 2023
The Short Answer
In general, you cannot directly access your entire superannuation to use as a house deposit unless you meet a full condition of release (like reaching age 65 or retirement). However, there is a government scheme that allows you to use certain voluntary super contributions for your first home deposit – the First Home Super Saver (FHSS) scheme.
Understanding the First Home Super Saver Scheme
The FHSS scheme was introduced to help first home buyers save for a deposit using the concessional tax treatment of superannuation. It allows you to make voluntary contributions to your super fund that you can later withdraw specifically for purchasing your first home.
How the FHSS Scheme Works
- You make voluntary contributions to your super (either before-tax or after-tax)
- When you’re ready to buy, you apply to the ATO for a determination
- If eligible, you can withdraw these voluntary contributions (up to a limit) plus associated earnings
- You use this money toward your first home purchase
Key Limits of the FHSS Scheme
- You can contribute up to $15,000 per financial year
- The total maximum amount you can withdraw is now $50,000 (increased from the previous $30,000 limit)
- For couples, each person can access up to $50,000 (potentially $100,000 combined)
What You Can Withdraw
When you make a release request you can withdraw
- 100% of eligible non-concessional (after-tax) contributions
- 85% of eligible concessional (before-tax) contributions
- Associated earnings calculated using a formula set by the ATO
Am I Eligible for the FHSS Scheme?
To use the FHSS scheme, you must meet these requirements:
- Be 18 years or older
- Never have owned property in Australia (including investment properties, vacant land, or commercial property)
- Have not previously requested a FHSS release
- Intend to live in the purchased property as soon as possible
- Plan to live in the property for at least 6 months within the first 12 months of ownership
The Process: How to Use the FHSS Scheme
Step 1: Make Voluntary Contributions
First, you need to start making voluntary contributions to your super. These can be:
- Salary sacrifice arrangements with your employer
- Personal contributions that you claim a tax deduction for
- After-tax contributions that you don’t claim a deduction for
Remember that these contributions still count toward your normal super contribution caps.
Step 2: Request a FHSS Determination
When you’re getting ready to buy a home:
- Log into ATO online services through myGov
- Select “Super,” then “Manage,” then “First home saver”
- Apply for a FHSS determination
The ATO will tell you your maximum release amount based on your eligible contributions.
Step 3: Request the Release of Funds
After you have your determination and you’re ready to buy:
- Request a release of your FHSS amount through ATO online services
- Specify how much you want released (up to your maximum)
- Indicate which super fund(s) should release the money
The process typically takes 15-20 business days for the money to reach your bank account.
Step 4: Buy Your Home and Notify the ATO
If your determination was made on or after September 15, 2024:
- You must sign a contract within 12 months of your release request
- You must notify the ATO within 90 days of signing the contract
If your determination was made on or before September 14, 2024:
- You must sign a contract within 12 months of your release request
- You must notify the ATO within 28 days of signing the contract
The ATO may grant an extension for up to 24 months in total if needed.
Tax Implications of Using the FHSS Scheme
When you withdraw your FHSS amount:
- The ATO will withhold tax (usually at your marginal rate minus a 30% offset)
- You’ll receive a payment summary showing your assessable FHSS amount
- You must include this amount in your tax return for the year you requested the release
- You’ll benefit from a 30% tax offset on the assessable amount
Pros and Cons of Using Super for a House Deposit
Pros
- Potential tax benefits: Concessional contributions are taxed at 15% in your super fund, which may be lower than your marginal tax rate
- Disciplined savings: Money in super is locked away until you’re ready to buy
- Possible higher returns: Super fund investments may outperform regular savings accounts
- Couples benefit: Both partners can use the scheme for the same property purchase
Cons
- Limited withdrawal amount: Maximum of $50,000 may not be enough in expensive markets
- Time restrictions: Must buy within 12-24 months of release
- Tax consequences: If you don’t buy a home, you’ll face FHSS tax (20% of your assessable released amount)
- Processing time: Takes up to 20 business days to receive funds, which might affect purchase timing
- Property restrictions: Can’t be used for investment properties, vacant land (unless building), houseboats, or motor homes
What Happens If I Don’t Buy a Home?
If you don’t end up buying a home within the allowed timeframe, you have two options:
-
Recontribute the money back to your super: You must contribute an amount equal to your assessable FHSS released amount (less tax withheld) as a non-concessional contribution.
-
Keep the money and pay FHSS tax: You’ll be subject to an additional flat tax of 20% on your assessable FHSS released amount.
Financial Hardship Provisions
Even if you’ve previously owned property, you might still qualify for the FHSS scheme if you’ve suffered financial hardship that resulted in losing ownership of all property. Qualifying hardship events include:
- Bankruptcy
- Divorce or relationship breakdown
- Loss of employment
- Illness
- Natural disaster
You’ll need to apply through the ATO and provide evidence linking your property loss to the hardship event.
Other Options for First Home Buyers
If the FHSS scheme doesn’t meet your needs, consider these alternatives:
- First Home Owner Grants: Check your state’s offerings
- First Home Loan Deposit Scheme: Government guarantee that can reduce deposit requirements
- Family guarantees: A family member uses their property as security for part of your loan
- Shared equity schemes: Government or private programs where they co-own a percentage of your property
Common Questions About Using Super for a House Deposit
Can I use my super to buy an investment property?
No. The FHSS scheme is specifically for buying a home you’ll live in, not an investment property.
Can I use my super to pay off my mortgage?
Not until you reach your preservation age or meet another condition of release. The FHSS scheme is only for first home buyers.
Can I withdraw my entire super balance for a house deposit?
No. Only voluntary contributions up to the specified limits can be accessed through the FHSS scheme.
Does using the FHSS scheme affect my eligibility for state government concessions?
The FHSS scheme is separate from state government concessions. Check with your state authority to confirm how using the FHSS might impact other concessions.
Final Thoughts
The FHSS scheme offers a helpful pathway for first home buyers to leverage the tax advantages of superannuation to build a deposit. While it won’t give you access to your entire super balance, it can provide a significant boost to your deposit savings.
Remember, everyone’s financial situation is unique. Before making any decisions about using your super for a house deposit, I recommend chatting with a financial advisor who can provide personalized advice based on your circumstances.
Have you tried using the FHSS scheme? We’d love to hear about your experiences in the comments below!
Disclaimer: This information is current as of October 2023. Super regulations and the FHSS scheme details may change over time. Always check with the ATO or a financial advisor for the most up-to-date information.
Three ways you can use your super to buy a property in Australia
If you’re an eligible first-home buyer, you can withdraw some of your voluntary super contributions through the government’s First Home Super Saver (FHSS) scheme.
First Home Super Saver (FHSS) Scheme for First-Time Buyers
If you’re a first-time homebuyer, the First Home Super Saver (FHSS) scheme could be a great way to use your superannuation savings for your first home deposit.
How It Works:
– Under the FHSS scheme, you can make voluntary contributions to your super fund (both concessional and non-concessional), which will be taxed at a lower rate (15%) than your normal income tax rate.
– After saving in your super for a minimum of 12 months, you can withdraw your voluntary contributions (plus any associated earnings) to use towards purchasing your first home.
Key Points:
– The maximum amount you can withdraw is $50,000 (for contributions made since July 1, 2017), which can provide a substantial boost to your first home deposit.
– The property must be your first home, and it must be owner-occupied.
– This is an excellent way to save for a property quickly, as your super is invested and grows faster than it would in a regular savings account.