Join Australia's most dynamic and respected property investment community

Using Superannuation for house deposit/costs

Discussion in 'Property Finance' started by Angel, 29th Mar, 2016.

  1. Angel

    Angel Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    1,291
    Location:
    Paradise, Brisbane
    Here is a question for the strategists. Mr Angel turns 60 in a few months and thought about "retiring" from his current full time position and contracting instead. What do you think of this idea for accessing say $100K from his Super to use to start buying a cheapy that we can move into (PPOR status) and renovating it around working at his current "job". To access Super tax free, would he have to remain out of the ordinary workforce for any length of time? For lending servicability, would he have to have a full time job instead? I am 55 already and work part time but don't want to use super TTR if I will lose anything by drawing out bits.

    Yes, we will talk to the super companies but I want your opinions too as they will have a vested interest in keeping all our resources with them.
     
  2. Scott No Mates

    Scott No Mates Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    5,567
    Location:
    Sydney or NSW or Australia
    TTR was the first thought but he needs to take a less demanding role ie part time afaik (or in another company).
     
  3. Angel

    Angel Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    1,291
    Location:
    Paradise, Brisbane
    We don't want drips of cash, we want a huge chunk.
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,999
    Location:
    Sydney
    It may be possible but you will be taking money out of a low taxed environment to a high taxed environment.
     
    sanj likes this.
  5. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,387
    Location:
    Sydney
    Seek personal advice. Age 60 isn't a condition of release.
    A early release scheme can result in penalties.
     
  6. Scott No Mates

    Scott No Mates Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    5,567
    Location:
    Sydney or NSW or Australia

    He isn't in Boggo Road :p
     
    Gingin and Marg4000 like this.
  7. sanj

    sanj Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    2,148
    Location:
    Perth
    yup. doesn't make any sense to me from that POV.
     
  8. Angel

    Angel Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    1,291
    Location:
    Paradise, Brisbane
    How will it be high taxed? It will be used to set up a business venture or for the deposit on another house. It will be spent, not sitting around looking pretty. I thought it is tax free to withdraw it after you turn 60 and have officially retired from your day job. If you return to work after a few months, having spent it, then isn't its tax status irrelevant?
     
  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,999
    Location:
    Sydney
    Capital isn't taxed, but the income produced from it is taxed at marginal tax rates.
     
  10. neK

    neK Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    1,272
    Location:
    Sydney
    Correct.
    One of the superannuation conditions of release is Over 60 and terminate gainful employment. There is nothing about it having to be permanent.
    In theory he could quit his job, cash out $100k, then go get another job the next day.

    The guys are talking about how the money is taxed once its outside of super - which would be no different to you having $100k in your bank account.

    (Comparing this to holding the money within your super, moving it into a pension where the earnings are tax free).
     
  11. Angel

    Angel Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    1,291
    Location:
    Paradise, Brisbane
    Thank you neK,

    It would help me if they read the OP and answered my specific questions, rather than giving irrelevant comments from their own POV. I already know a bucket load of info about tax and Super and I already knew those very basic things :rolleyes: Doesn't everyone? If I can give specific help when other people ask me a question, I would think I could get the same level of help on the few occasions that I ask .

    I actually thought my post would open up a discussion on all the pros and cons of something that is somewhat unusual. Maybe later after I go to bed.

    And we wonder why journalists and others have the very real belief that people only invest in real estate to avoid paying tax.
     
  12. kierank

    kierank Well-Known Member

    Joined:
    20th Jan, 2016
    Posts:
    1,026
    Location:
    Brisbane
    Is there another reason?
     
  13. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,999
    Location:
    Sydney
    Here is an example

    X has $100,000 in super and it is invested in Z and earning 8% pa = $8,000. There is no tax payable by the fund because it is in pension mode. Furthermore the $8,000 could be withdrawn from the fund tax free each year because X has met a condition of release.

    Y is in the exact same situation, but withdraws $100,000 as a lump sum. Outside of super Y invests the funds into Z and earns $8,000 pa. But Y goes back to work and earns a salary which means they are in the 37% tax bracket so they pay $8,000 x 37% in tax.

    This will effect the investment because there is less capital capitalising.

    For these reasons it is generally not good to take money from Super to invest. It is not for tax reasons, but for investment reasons. You can invest the same amount of money into the same thing.

    But in Angel's case she wants to use the proceeds to buy a PPOR so there may be no tax payable. There is also the ability to leverage and access equity etc.

    It may also be possible to withdraw and then recontribute the same or a similar amount back into super at a later date.
     
  14. Angel

    Angel Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    1,291
    Location:
    Paradise, Brisbane
    Thank you Terry. Finally!
    (I really do like you, honest)

    Yes, he wants to buy a ute/truck for his tools and to tow a caravan in the future. I think the truck can wait. Anyway we think this should work..... buy a dilapidated house in a nearby location so we can live in it and still drive to our workplaces. After the initial few weeks of hard work to get it livable, then take our time finishing the job and the remainder of the process can be done after hours. Sell for a nice profit or refinance, rinse and repeat until it is time to move back into the real PPOR or to go travelling.

    Now for financing, we would have to have some income to get the funds. I assume a bank isn't going to accept "retired" on the mortgage application. Is that correct? What about "contractor" (IT)
     
  15. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,999
    Location:
    Sydney
    Banks can accept income from super in some instances. But if you are withdrawing it in a lump sum, the income would cease (or reduce). if you have equity tap into it before 'retirement'.
     
  16. Heinz57

    Heinz57 Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    493
    Location:
    Brisbane
    In pension mode, could you take large enough withdrawals to fund the purchase? I suppose the result is the same.
     
  17. Angel

    Angel Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    1,291
    Location:
    Paradise, Brisbane
    Found this on QSuper website (my age group)


    3. Lower, or no, tax on lump sum payments

    The amounts that you cash out when you’re aged between 55 and 60 are concessionally taxed, and subject to the low rate cap. If you’re in this age group, you can access the first $195,000 (2015/2016 financial year) of your taxable component without paying any tax. Any amount you cash out after you turn 60 is tax free.


    I expect this will change each financial year as the govt tightens these rules. Off to the ATO website for some casual reading.
     
    Last edited: 30th Mar, 2016
  18. mcarthur

    mcarthur Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    532
    Location:
    ACT
    I thought that super had limitations on what/where it could invest?
    Wouldn't those limitations mean that taking it out is the only way for some investing or use of the money to occur?
    One example (so I understand!) would be if your wanted a high LVR on a resi property investment - super can't do this but an individual can (subject to individual situation of course).
     
  19. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,999
    Location:
    Sydney
    Super can be invested in most the same places as an individual can invest. But there are lender restrictions on LVR max 80% usually, but 70% more common.
     
    sanj likes this.