Buying a Property with Your Superannuation: Pros and Cons

Buying a Property with Your Superannuation: Pros and Cons

Buying a Property with Your Superannuation: Pros and Cons

Superannuation in Australia is money set aside by the employer throughout the working life of an employee meant for retirement. The money can only be withdrawn in very specific circumstances such as during retirement at 65 years of age.

May Australians have become used to the idea of putting aside money for their retirement. This was since the introduction of the compulsory employer superannuation contributions under the Keating Labor Government in 1992.

With this cause, several Australians have taken the step further to invest more than the required amount. Eventually, they have started to seize the opportunity of taking direct control of the funds through Self Managed Super Fund or SMSF.

For many, the attractiveness of an SMSF is its capacity to be utilized for property purchase, the tax benefits, and control over your funds. On the other hand, it also requires a lot of planning and continuous attention to make sure it is managed effectively and that the policies are met all the time.

Pros of Property Investment Using Superannuation

A few of the considerable advantages of purchasing property through your superannuation are as follows:

  • It’s a fairly stable and low-risk investment when compared with other available choices
  • Can provide significant returns
  • It provides a means to broaden your investment portfolio
  • Efficiently targeted investment properties can produce extra revenue
  • There is more control over property investment which includes shares that are susceptible to fluctuations in the market
  • Superannuation contributions help repay any financial loan linked to the property
  • Property secured by SMSF will be protected in cases of general debt recovery as well as bankruptcy procedures.
  • Members of SMSF have access to considerable tax efficiencies limited in the superannuation setting such as:
    – no capital gains tax once member retires
    – loan repayments could successfully become tax deductible
    – negative gearing benefits inside an SMSF environment.
    – upon disposal of property, income after expenses and any capital gains are taxed at a 15% maximum rate compared to regular rates of up to 46.5%.

Cons of Property Investment Using Superannuation

The disadvantages are closely related to buying a property outside the security of an SMSF. This includes the following:

  • It takes some considerable time to sell, market, and settle a property.
  • There are expenses required with selling and buying a property
  • Property costs may possibly drop, that may consume your capital growth
  • The property could be untenanted for some period
  • The property requires continuing management demands and expenses
  • No exemption from stamp duty payments when acquiring a property using your SMSF.

There are various considerations to take into account when buying a property using your superannuation. Like any investment purchases, careful planning should be considered. It is best to seek professional help. Consult an attorney and a financial planner when it comes to using SMSF to acquire property for investment.