Can I use MySuper to buy a house & buy shares with SMSF?

Highlights

• Superannuation funds are crucial for retired Australians looking for a steady source of income.
• MySuper is a superannuation product set as the default investment option if an employee does not update his investment preferences.
• Buying a house with one’s super fund can be tricky and comes with many considerations.

Superannuation funds have been a dependable source of stability for retired Australians. For instance, these funds have seen growing usage as savings to buy a house. However, one might not be able to buy a house by simply holding any superannuation fund.

Here is a guide to MySuper and how superannuation funds can help ease prospective homebuyers’ quest to find a desirable house.

ALSO READ: Fretting over increased market volatility? Here’s what you can do

What is MySuper?

MySuper is a default superannuation fund opened in the name of eligible workers. The initiative was started in 2012 and is an investment option that the employer chooses in case the employee does not have a super fund. Thus, it acts as a default setting for those employees who are yet to pick their desired fund.

MySuper offers some advantages over other types of super funds such as lower fees and simple features. MySuper users can either have ‘single diversified’ or a ‘lifecycle’ type of investment. These are low-risk types of investments with a standardised reporting system.

Additionally, MySuper funds are useful when employees change jobs and do not inform the new employer about their existing super fund. In this case, the employer’s contribution is automatically recorded in the employee’s super fund’s MySuper investment option. However, if the super account holder wishes to change to an alternative investment option, they can do so.

What all do you need to know for Australian Super ?

Other options include Growth, Balanced and Conservative Investment. For Industry SuperFunds, additional investment options of High Growth, Sustainable Investments, and other pre-mixed options are available.

ALSO READ: Three technical indicators to help gauge market volatility

Can I use my super for a house deposit?

Superannuation funds have quickly evolved into a tool to buy a house for residential or investment purposes. However, under the super guidelines, account holders cannot directly use their super funds as a deposit to buy a new house.

For those holding a self-managed super fund (SMSF): SMSF holders can directly use their super funds to buy a house, though only for investment purposes. This type of investment is categorised under the ‘sole purpose’ classification by the Australian Tax Office (ATO), under which it can only be used to provide retirement income for fund members.

For those holding a professionally managed super fund: Eligible first home buyers holding a professionally managed super fund can use the First Home Super Saver Scheme (FHSS Scheme) to buy a house. This is an exception offered to those super account holders who do not have an SMSF. Under the FHSS Scheme, would-be first-home buyers can save for a deposit inside their superannuation account. Some of these voluntary extra super contributions can then be pulled out at the time of buying a house, which also helps save up on tax. However, these extra contributions are different from the compulsory ones.

For those above 65 years of age: Those who are not a first-home buyer or an SMSF holder can only buy a house with their super funds after reaching the ‘preservation age’. Individuals get full access to their superannuation funds at the age of 65 or after reaching the ‘preservation age’ as specified by the ATO. This access is granted even if an individual has not retired. The minimum preservation age remains 55 years for those born before July 1, 1960, and 60 years for those born after July 1, 1964.

Buying shares with SMSF?

SMSF account holders can buy shares with their super funds. The main condition that needs to be fulfilled under this is that the SMSF’s investment strategy should support the trading. Since super account holders are the trustees in SMSFs, they are responsible for choosing the investment strategy.

An SMSF can invest in listed shares, which includes international shares and unlisted shares, which can be public or private. The listed shares can be purchased directly via a broker or via methods such as managed funds and derivatives such as CFDs. A brokerage fee would also be applicable while purchasing shares.

Most SMSF holders would prefer holding shares as an investment because of the tax incentive offered against them. Shares that have fully franked dividends and are included in the investment strategy of the SMSFs are taxed at a lower rate of 15%.

Holding shares in a private company might allow for a greater level of complexity for the trustees. Unlisted companies should not be a related-entity to the SMSF. If it is found to be related to the SMSF then the fund’s ability to invest into it would be limited to 5% of the SMSF’s assets.

ALSO READ: US rate hike: How Australians can prepare if RBA follows suit