Can I use my super to buy a house? A guide for Australian home buyers

As property prices continue to soar, many Australians are exploring how they can leverage their superannuation funds to purchase residential or commercial property.

Can your super be your path to property ownership? The short answer is yes—but under specific conditions.

We have put this guide together to show you what your options might be depending on your circumstances.

First Home Super Saver (FHSS) Scheme

Accelerate your Home Deposit with Tax Advantages

The First Home Super Saver Scheme (FHSS) allows first home buyers to use voluntary contributions made to their super fund to save for a home deposit more quickly.

How the FHSS Scheme Works

The FHSS scheme allows eligible first home buyers to build a deposit faster by taking advantage of the tax benefits offered through their super fund. This means you could get into your first home sooner than you would through traditional savings methods.

Here’s a detailed breakdown of exactly how the scheme works:

Make Voluntary Contributions

Under the FHSS scheme, you can make voluntary contributions to your superannuation fund, with limits set to help you maximise tax advantages:

• Up to $15,000 per financial year
• Total contributions capped at $50,000

These voluntary contributions fall into two categories:

1. Salary Sacrifice Contributions (Before-Tax)

Arranged through your employer, salary sacrifice contributions are deducted from your gross income before tax is applied. This strategy not only boosts your super balance, but also reduces your taxable income. These contributions are taxed at the concessional super rate of 15%, which is typically much lower than your marginal income tax rate—resulting in immediate tax savings.

2. Personal Before-Tax Contributions

Also known as tax-deductible personal contributions, these are made directly by you (not through your employer) from your own funds. You can then claim a tax deduction for them when lodging your tax return. Like salary sacrifice, these are taxed at 15% in your super fund, providing similar tax efficiencies.

3. Personal After-Tax Contributions

Made from your take-home pay after income tax has already been paid, these contributions don't reduce your current taxable income. However, they still count toward the $50,000 FHSS cap and can be withdrawn tax-effectively when you’re ready to buy your first home—making them a valuable addition if you’ve already maximised your concessional contribution cap.

Accumulate Associated Earnings

The contributions you make under the FHSS scheme don't just sit idle. Instead, they earn a deemed rate of return (set by the Australian government), known as associated earnings. These earnings help your savings grow faster and are also subject to beneficial tax treatment when eventually withdrawn.

Withdraw Funds at a Lower Tax Rate

When you're ready to purchase your first home, you'll need to request a withdrawal via an FHSS release request submitted to the Australian Taxation Office (ATO).

Once approved, you can withdraw:

• The amount you contributed (up to the allowed limit)
• Plus associated deemed earnings

Importantly, withdrawals made through the FHSS scheme are taxed at a concessional rate that's typically lower than your marginal tax rate, allowing you to retain more funds towards your home deposit.

Applying Through the Australian Taxation Office (ATO)

Before signing any contract or committing financially to the purchase of your residential property, you must formally apply for your FHSS withdrawal via the Australian Taxation Office. The ATO will assess your eligibility based on the scheme’s specific criteria, your contribution history, and other details about your intended home purchase. This step is critical, as it ensures your withdrawal qualifies under the FHSS scheme, avoiding any unintended tax implications or penalties.

Eligibility Criteria:

• Be a genuine first home buyer.
• Have never previously owned property in Australia.
• Plan to occupy the residential property as soon as practical and stay for at least 6 months.

Self Managed Super Fund (SMSF) for Property Investment

A Self Managed Super Fund (SMSF) allows Australians to take direct control over their superannuation balance by choosing exactly where and how their money is invested. A popular strategy for SMSF trustees is to use their fund to purchase an investment property. However, there are stringent rules and guidelines around how property can be held and managed within an SMSF to ensure compliance and maintain tax advantages.

When purchasing property through an SMSF, the asset must be genuinely intended for investment purposes, aimed at generating retirement wealth for fund members, this is to ensure the fund meets the sole purpose test.

Rules for SMSF Property Investments

It’s important to understand and adhere to the strict regulations set by the Australian Taxation Office (ATO) to avoid non-compliance penalties:

Residential and Commercial Properties Allowed

SMSFs can purchase both residential and commercial property. Residential properties must strictly serve as investments.

Prohibited Personal Use

You cannot personally live in a residential property owned by your SMSF. Additionally, you cannot lease it to your relatives or fund members. Doing so would breach the sole-purpose test of SMSF investments, potentially triggering severe penalties.

Commercial Property Lease Arrangements

SMSFs can purchase commercial properties and lease them back to a business owned by the trustees or related parties. However, the arrangement must strictly follow market conditions and reflect current commercial rental rates. This ensures compliance with arm’s-length transaction rules enforced by the ATO.

Limited Recourse Borrowing Arrangement (LRBA)

One significant advantage of using an SMSF for property investment is the ability to leverage borrowed funds through a Limited Recourse Borrowing Arrangement (LRBA). Under an LRBA, your SMSF borrows funds to acquire a specific asset, typically a property.

Asset Protection and Limited Liability

The LRBA structure limits the lender’s recourse to the specific asset purchased. This means that in case of default, other assets within your SMSF are protected from claims by the lender. This arrangement significantly reduces risk exposure within the fund.

Lender Options and Requirements

Traditional lenders such as Westpac and Commonwealth Bank previously offered SMSF loans, but many major banks have tightened or withdrawn these services in recent years. Specialist non-bank lenders now dominate this niche market, offering competitive terms, although often with stricter conditions or higher interest rates. Working closely with a qualified mortgage broker can help trustees navigate these options effectively.

Additional Costs and Fees

When using an LRBA, trustees should be aware of additional expenses including loan setup costs, legal fees, ongoing property management fees, and SMSF-specific administration charges. It’s critical to budget carefully and seek professional advice to understand the full cost implications.

Tax Implications for SMSF Property Investments

Property investments held within an SMSF benefit from a concessional tax environment, significantly enhancing the attractiveness of this investment approach.

Rental Income Taxation

Income generated from the property (such as rent) is taxed at a concessional rate of just 15% within your SMSF. This rate is typically far lower than personal marginal tax rates, providing an effective tax shelter for accumulating wealth.

Capital Gains Tax (CGT)

SMSFs enjoy favourable Capital Gains Tax treatment. If the fund holds the investment property for more than 12 months, the CGT payable on the eventual sale of the property is capped at just 10%. This rate is substantially lower than personal CGT rates and incentivises holding assets longer term.

Claiming Expenses and Deductions

Your SMSF can claim allowable expenses related to property ownership, including loan interest payments, property management fees, insurance, maintenance costs, depreciation on fixtures, and SMSF administrative expenses. These deductions further enhance the tax efficiency of property investment within an SMSF.

Accessing Super for Property After Retirement

Using Your Super Post-Preservation Age

After reaching your preservation age (55–60) and satisfying a condition of release, you can withdraw your super funds tax-free, including for property purchase purposes.

Considerations for Retirees

• Accessing super early for property can impact your retirement income.
• Significant withdrawals can affect eligibility for Age Pension.
• Seek advice from a financial planner or mortgage broker to ensure your decision aligns with your financial goals.

Restrictions on Using Super: When You Cannot Access Super for Property

While superannuation offers valuable pathways to property ownership under schemes like the First Home Super Saver (FHSS) scheme, a Self Managed Super Fund (SMSF), or post-retirement access, there are strict limitations you must understand clearly.

The Australian superannuation system is primarily designed to support Australians in retirement. Thus, accessing your super fund to buy property outside the specific allowable circumstances can lead to unintended consequences.

Prohibited Early Access to Superannuation

Generally, you cannot withdraw or access your super funds early, simply because you want to purchase property or cover costs associated with a home purchase. Except in very clearly defined cases, your super balance must remain preserved until you reach your preservation age (between 55 and 60, depending on your birth year) and satisfy a condition of release (such as retirement).

Permissible avenues to access superannuation for property purchases include:

• The First Home Super Saver Scheme (FHSS scheme) for eligible first-time buyers.
• Investment through an approved Self Managed Super Fund (SMSF) arrangement.
• Access after reaching retirement age or satisfying a condition of release.

Risks of Attempting Early Withdrawal

Any attempts to withdraw or misuse your super outside these sanctioned scenarios are strictly monitored and penalised by the Australian Taxation Office (ATO).

Penalties for improper early withdrawal can include:

• Significant financial penalties or fines.
• Increased personal tax obligations.
• Loss of tax concessions for the amount withdrawn.
• Potential prosecution or legal action in serious cases.
• Loss of insurance cover or other benefits associated with your super fund.

Beware of Early Access Scams

In recent years, fraudulent schemes have emerged online and in social media, falsely promising to help Australians access their super early for property purchases or other personal expenses. These schemes are often misleading and exploit vulnerable individuals.

Warning signs of such scams include:

• Promises of accessing your super without clearly defined conditions.
• Requests to transfer your super to unfamiliar funds or overseas entities.
• High-pressure tactics urging quick decisions without professional advice.

Always verify any unusual offers by consulting directly with your super fund or a licensed financial professional.

Legitimate Early Access Exceptions

Although buying a home isn’t generally an accepted reason for early withdrawal, the ATO allows limited exceptions for early access under extreme conditions such as:

• Severe financial hardship (evidenced by sustained inability to meet basic living costs).
• Compassionate grounds (such as preventing foreclosure of your primary home or covering critical medical expenses).
• Terminal illness or permanent incapacity that restricts your ability to earn income.

Even under these circumstances, formal applications must be made directly to the ATO and your super fund, with stringent eligibility criteria to meet.

The Importance of Professional Advice

Using your superannuation fund strategically for property purposes can yield significant benefits when approached correctly. However, it’s crucial to carefully navigate these complexities, rules, and compliance requirements with the help of qualified professionals, including:

• A registered tax agent.
• An experienced mortgage broker.
• A financial planner, if required.

Seeking expert advice ensures you stay compliant with superannuation laws, maximise tax benefits, and avoid costly mistakes.