Chat with us, powered by LiveChatUsing your Super fund to purchase an investment property

Using your Super fund to purchase an investment property

Some would argue all that has stopped superannuation from being one of the great tax wonders of the world is that you couldn’t negatively gear an investment property with it.

Well here’s some really great news. Recent legislation now allows most Australian’s to use their superannuation fund to borrow and invest in property. You may not even need to use your own home as security for the borrowing. So why is this exciting news?

No capital gains tax for starters. Hypothetically speaking, you could buy a property today for $400K, hold it for 20 years in your super fund, and sell it at the age of 60 when you retire. Using this scenario, the property would have likely tripled in price to $1.2 million during which time you have paid no capital gains tax. If you sold the equivalent property in your own name, you are possibly looking at a marginal tax rate of 40% plus.

But it doesn’t finish there. Having now retired, you can invest the $1.2 million inside your super fund with no income or capital gains tax on future investment earnings. You may also choose to draw a regular income from your super and pay no tax on that income either.

The beauty of running property through a super fund is that the combination of rental income, employer contributions, and perhaps your own contributions could potentially cover all the costs associated with the property.

Then there’s the gearing angle. You can take $200K of the cash in your super, borrow another $300K and buy a $500K property asset. Instead of income earnings and growth on $200K, you now have a $500K asset working for you. What’s more, generally speaking property has tended to have a more stable pattern of growth without the more dramatic ups and downs often associated with shares. Not that shares don’t do quite nicely over time, it’s just a bumper ride as you may have noticed.

So who can take advantage of all these great tax concessions and strategies? Put simply most of us can, provided we have sufficient funds in our current superannuation funds.

Disclaimer: This article is intended for general information only and has been prepared without taking into account your objectives, financial situation, or needs. You should consider seeking professional financial advice before acting on the information herein.